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UK: Small size investor sentiment towards corporate event announcement

, February 25, 2014, 0 Comments

small size investor sentiment part one marketexpressObserving small size investor sentiment towards corporate event (dividend) announcement. The data is genuine and are collected from small size investors living in England, London stock exchange, and FTSE 250 index listed companies closing share prices. The investor behavior during corporate announcement period was found to be varying during the pre and post announcement period. Most of the investor forecasts, the share price increases during pre-announcement, but actually in some cases, both security returns variability and cumulative abnormal returns values, proved that share prices increase during post announcement period.

Most of the industrial sectors reacted positively during post announcement period of dividend. The sources of information obtained by institutional investors has a higher value than the small size investors. Here we focus on small size investors. The market has captured the dividend announcement and contains information that has a positive reaction by the market after the announcement. So, the small size investors are recommended to take prompt investment decision (buy or sell) instruction, to benefit from the dividend announcement.

The Investor sentiment method, aspects a number of investigates: describing and evaluating unaware demand. Investor sentiment accepting the fundamentals, difference in investor reaction over time are responsible for the attraction towards a particular stock. Investors have limited arbitrage potential but the possible payoffs of an improved understanding of investor sentiment are considerable.

This study mainly focused investors. It describes the investor sentiment towards dividend announcement period and explains about how investors have reacted in the pre and post announcement period. It also explains about investor’s behavior, of buying or selling or holding the shares in the market.

This study includes small size investors.- Small size investors may not be aware about the corporate event announcements., the market reactions when event announcements are released by the companies.. How market reacts, whether the stock prices increases or decreases, the greatest time for investing their money in to the company stocks.

Investor sentiment may change time to time so investor needs some confirmation to invest their money in growing stocks for future returns. We focus to test the behavior of investors during corporate announcement, to examine the reaction of investor towards event announcement and to test the investor’s sentiment toward particular corporate event announcement.

Investor sentiment
Investors have little trust in the companies and therefore prefer to invest in government schemes and other safer modes of investment. Changes in the share prices, based on corporate event announcement (dividend), influence the investor’s confidence, and the sentiment in turn are expected to influence corporate event announcement.

The expectedness in stock returns, increases trading volatility, which indicates investors under or over reaction to corporate announcement. While sentiment decreases, we may observe the increased returns on lesser stocks, increased volatility in stocks and non-dividend paying stocks. But when the sentiment increases these patterns goes in the opposite direction. This impact is mostly due to small investors.

Reaction in corporate event announcement
The market reaction to events announcement, categorizes the stock price of the company, reporting positive (negative) information, which will go with the flow in the after announcement period

Investor can reach their preferred level of change over a corporate events announcement. So there must be an association between investor sentiment and corporate events announcement. Based on event news, investors will prefer to buy , sell or hold their stocks. If there is a positive reaction of event news ,their sentiment may not change, if they are already holding the shares. If the reaction of event news is negative, they may sell their shares.

The UK companies usually announce both the dividend announcement and earnings suddenly, making it a problem to separate out the dividend announcement result with that of earnings. The market reaction to dividend change announcements is more sensitive to dividend increase when sentiment is growing for the UK market.

How dividend announcement affect the investor’s decision in investments?
The behavioral finance literature progressively relates several of these theories, comprising of cognitive difference to describe variances in financial market, behavioral finance theory, which is less responsive to stock prices information, the crisis stock prices are highly responsive.Investors respond more strongly to negative news than to positive news.

The under-reaction to buys and sells, when the market under-reacts to positive and negative news- The market is more possible to have under-reacted to positive and negative dividend announcement are low and high, so an active investor will purchase following a positive dividend announcement companies stocks by a low announcement return. They will sell, following a negative dividend announcement companies stocks by a high announcement return.

Investor selling after positive dividends when the announcement return is high, subsequently in this situation dividend are more likely to be at a high point and the market is unlikely to have under-reacted. Investors purchase more and sell less number of stocks when the dividend news is positive and the markets initial return following the dividend announcement is small.

Upcoming week will continue the evidence and analysis parts of this research.