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Observed dividend policy patterns 1.observed dividend policies show distinct national patterns. 2.

dividend policies have pronounced industry patterns, and these are the same worldwide.3.within industries, dividend payout tends to be directly related to size and asset intensity, but is inversely related to growth rate.4.almost all firms maintain constant nominal dividend payments per share for long periods of time.5.the stock market reacts positively to dividend initiations and increases, and has a strong negative reaction to dividend decreases or eliminations 6.dividend changes clearly convey information about managements expectations regarding the firms current and future earnings. 7.taxes clearly influence dividend payouts, but the net effect is ambiguous and taxes neither cause nor prevent companies from initiating dividend spite of intensive research, it is unclear exactly how dividend payments affect the required return on a firms common stock9.changes in transactions costs or in the technical efficiency of capital markets seem to have very little impact on dividend payout. 10. ownership structure matters The strong-form EMH contends that stock prices fully reflect all information from public and private sources. This means that no group of investors has monopolistic access to information relevant to the formation of prices. Therefore, this hypothesis contends that no group of investors should be able to consistently derive above-average risk-adjusted rates of return. The strong-form EMH encompasses both the weak-form and the semistrong-form EMH. Further, the strong-form EMH extends the assumption of efficient markets, in which prices adjust rapidly to the release of new public information, to assume perfect markets, in which all information is cost free and available to everyone at the same time.

The early work related to efficient capital markets was based on random walk hypothesis, which contended that changes in stock prices occurred randomly. Fama(1970) presented the EMT in terms of a fair game model. Weak form EMH Market is said to be $ if current security prices complete it incorporate the information contained in past prices. The set of information includes the historical sequence of price, rates of return, trading volume data, and other market-generated information, such as odd-lot transactions, block trades and transactions by exchange specialists or other unique group. Or in other words, past rates of return and other market data should have no relationship with future rates of return; such an evaluation is called technical analysis or charting. $ implies that technical analysis cannot be used successfully to forecast future prices and therefore that technical analysts do not earn extraordinary profits Autocorrelation and run test

Simi strong form hypothesis The semistrong-form EMH asserts that security prices adjust rapidly to the release of all public information; that is, current security prices fully reflect all public information. The semistrong hypothesis encompasses the weak-form hypothesis, because all the market information considered by the weak-form hypothesis, such as stock prices, rates of return, and trading volume, is public. Public information also includes all nonmarket information, such as earnings and dividend announcements, price-to-earnings (P/E) ratios, dividend-yield (D/P) ratios, pricebook value (P/BV) ratios, stock splits, news about the economy, and political news. Event study, quintile regression, time series

APT which was developed by Ross in the mid-1970sa nd has three major assumptions:1. Capital markets are perfectly competitive.2. Investors always prefer more wealth to less wealth with certainty.3. The stochastic process generating asset returns can be expressed as a linear function of a set of K risk factors (or indexes).=Equally important, the following major assumptions which were used in the development of the CAPMare not required: (1) Investors possess quadratic utility functions, (2) normally distributed security returns, and (3) a market portfolio that contains all risky assets and is mean-variance efficient. Obviously, if such a model is both simpler and can explain differential security prices, it will be considered a superior theory to the CAPM.=The theory assumes that the stochastic process generating asset returns can be represented as a K factor model of the form: Ri = E(Ri) + bi11 + bi22 + ... + bikk +i for i = 1 to n Ri = the actual return on asset i during a specified time period, i = 1, 2, 3, . . . n

E(Ri) = the expected return for asset i if all the risk factors have zero changes bij = the reaction in asset is returns to movements in a common risk factor j ck = a set of common factors or indexes with a zero mean that influences the returns on all assets di = a unique effect on asset is return (i.e., a random error term that, by assumption, is completely diversifiable in large portfolios and has a mean of zero) n = number of assets=Two terms require elaboration: j and bij. As indicated, terms are the multiple risk factors expected to have an impact on the returns of all assets. Examples of these factors might include inflation, growth in gross domestic product (GDP), major political upheavals, or changes in interest rates. The APT contends that there are many such factors that affect returns, in contrast to the CAPM, where the only relevant risk to measure is the covariance of the asset with the market portfolio (i.e., the assets beta).