Market reaction to changs in companies dividend trends (evidence from Tehran stock exchange)

The basic question of this research is whether markets react to company deviations from their dividend trends? To answer this question, we have studied shareholders reaction to changes after any of the three types of ascending, descending and unchanged trends. For this purpose, company dividends were studied during the years 1995 to 2007. We have used Capital Asset Pricing Model (CAPM) and Fama & French three factors model to check shareholders reactions and to determine the significance of the results using t-test at levels α= 0.01, 0.05, 0.1. The results show that markets show a positive reaction to all positive deviations. With respect to the negative ones, we should attend to the former trends, because contrary to our supposition dividends''s decline showed a positive reaction after a descending trend. When a company has no deviation from the historical trends, usually markets do not show unexpected reaction. In contrast to many previous studies, the results of this study show that markets react to positive news more than to negative ones.