The response of stock prices to dividend news on the Ghana stock market: An empirical assessment


  • Gideon Boako Department of Accounting and Finance, Garden City University College, Ghana.



Co-integration, Composite index, Dividend, Equity prices.


An important assumption of the signaling hypothesis is that dividend change announcements are positively correlated with share price reactions and future changes in earnings. However, Miller and Modigliani (1961)sustains that, dividend policy is irrelevant in arriving at a firm value, if the capital market is perfect. The purpose of this paper is to assess the potency of the dividend irrelevance theory on the Ghana stock market by using the Johansen-Juselius cointegration methodology on daily data of dividends, earnings and stock prices from January 2011 to December 2013. The results establish that equity prices in Ghana are not in sync with dividend announcements. However, the incorporation of earnings in the cointegration model provides varying result. The findings indicate that equity price change movements in Ghana are not responsive to dividend news.


Abeyratna, G., Power, D.M., (2002). The post announcement performance of dividend – changing companies: the dividend signaling theory hypothesis revisited. Accounting and Finance 42: 131 – 151.

Alba, J.D., (1999). Are there systematic relationships between China’s and Southeast Asia’s exchange rates? Evidence from daily data. Asian Economic Journal, 13(1): 73-92.

Bank of Ghana Monetary Policy Committee Press Release, Nov. 2013.

Capelle-Blancard, G., & Raymond, H., (2004). Empirical evidence on periodically collapsing stock price bubbles. Applied Economics Letters, 11(1), 61-69. Campbell, J.Y., Shiller, R.J., 1987. Cointegration and Tests of Present Value Models. Journal of Political Economy 95: 1062 – 1088.

Cuthbertson, K., Nitzsche, D., (2005). Quantitative financial economics: Stocks, bonds & foreign exchange (2nd Ed.). Wiley Publications, pp: 397-420.

Daniel, K., Hirshleifer, Subrahmanyam, A.D., (1998). Investor psychology and security market under and overreactions. Journal of Finance 53: 1839 – 1885.

Diba, B.T, Grossman, H.I. (1988a). The theory of rational bubbles in stock prices. Economic Journal, 98: 746-757.

Diba, B.T., Grossman, H.I., (1988b). Explosive rational bubbles in stock prices. American Economic Review, 78: 520-530.

Frimpong, J.M., Oteng-Abayie, E.F., (2008). Market returns and weak-form efficiency: The case of Ghana stock exchange: In: Proceedings of the 9th International Conference of the IAADB, PP 23-29, University of Florida, Gainesville, Florida, May 20 24, 2008.

Froot, K.A., Obstfeld, M., (1991). Intrinsic bubbles: The case of stock prices. American Economic Review, 81: 1189-1214.

Ghana Stock Exchange Annual Report, 2013.

Ghana Stock Exchange Market Report, December 2013.

Gujarati D.N., Dawn C.P., (2009). Basic Econometrics, 5th Edition; McGraw-Hill Education (Asia): 699-849.

Hamilton J. D., (1994). Time Series Analysis. Princeton, N.J: Princeton University Press.

Horvath, M.T., Watson, W., (1995). Testing for cointegration when some of the cointegrating vectors are known. Econometric Theory, 11: 952-984.

Jirasakuldech, B., Emekter, R.J., Rao, R.P., (2008). Do Thai stock prices deviate from fundamental values? Pacific-Basin Finance Journal, 16: 298-315.

Johansen, S., (1991). Estimation and hypothesis testing of cointegration vectors in Gaussian vector autoregressive models. Econometrica: Journal of the Econometric Society: 1551-1580.

Johansen, S., (1995). Likelihood-based inference in cointegrated vector autoregressive models. Oxford: Oxford University Press.

Johansen, S., & Juselius, K., (1989). The full information maximum likelihood procedure for inference on cointegration-with applications (No. 89-11).

Johansen, S., Juselius, K., (1992). Testing structural hypothesis in a multivariate cointegration analysis of the PPP and the UIP for UK. Journal of Econometrics. 53.

Kahneman, D., Tversky, A., (1974). Judgment under uncertainty: Heuristics and biases. Science, 185: 1124 – 1131.

Lee, B.S., (1996). Comovements of earnings, dividends, and stock prices. Journal of Empirical Finance, 3: 327 – 346.

Miller, M., Modigliani, F., (1961). Dividend policy, growth, and the valuation of shares. The Journal of Business 34(4): 411 – 433.

Nartea, G. V., Bo, H., Baiding H., (2013). Are there rational speculative bubbles in the Philippine stock Market? The Philippine Economic Review 1: 45-56.

Peron, P., (1989). Testing for a unit root in a time series with a changing mean. Journal of Business and Economic Statistics, 8:153-162.,

Rangel, G., Pillay, S.S., (2007). Evidence of bubbles in the Singaporean stock market. Singapore Economic Review Conference, 2007.

Shiller, R.J., (1981). Do stock prices move too much to be justified by subsequent changes in dividends? American Economic Review, 71: 421 – 436.

West, K.D., (1987). A specification test for speculative bubbles. Quarterly Journal of Economics, 102: 553-580.

Yanik, S., Ayturk, Y., (2011). Rational speculative bubbles in Istanbul stock exchange. Journal of Accounting and Finance: 175-190.