Abstract
This study presents an analysis of dividend-driven trading strategies based on dividend yield growth effects in the Polish stock market in the years 1994–2004. Results indicate that the dividend yield growth portfolios were capable of beating the market in the entire sample period. Their performance, however, was not consistent over time and the highest returns were obtained during final years. Empirical findings based on the analysis of different types of portfolios demonstrate the importance of dividends as a source of significant fundamental information items from stock market companies. At the same time, they show that a dividend investment strategy for the Polish stock market is most successful when the selection of stocks for the dividend yield growth portfolios is subject to further restrictions, most notably concerning company size.
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Notes
In May 1997 it was granted designated offshore securities market status by the United States Securities and Exchange Commission. It was the first exchange in the region to achieve this status, which confirms the position of the WSE as a well regulated capital market meeting standards recognized in the USA.
Even now many companies have not yet developed a “habit” of satisfying the shareholders by paying out dividends (e.g., in 2004 less than 25 percent of the companies quoted on the WSE paid a dividend). This distinguishes corporate behavior on the stock market in Poland from that in most of more developed markets – but it is consistent with the practices common on other emerging stock markets.
It is also important to mention that dividends in Poland in the analyzed period were paid with annual frequency only. The dividend tax rate for individual investors was 20 percent until 2000, 15 percent in the period 2001–2003, and 19 percent afterwards.
The intention has been to avoid the end of every calendar year, as this choice might lead to distorted results due to possible year-end speculation in stocks for tax and/or accounting reasons.
We additionally compared the results for the portfolios’ returns calculated without and with dividends. Interestingly, the conclusions were exactly the same, as the profits from this investment strategy were generated predominantly due to the stocks prices’ appreciation while the actual dividend payments constituted only a very marginal part of those returns. More evidence on this effect is presented in a separate study in Brzeszczyński and Gajdka (2006).
A stock capital gains tax for individual investors investing on the WSE was introduced in 2004.
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Acknowledgements
We would like to thank Seth Armitage, Martin Bohl, David Brown, Ian Hirst, and the participants of the International Atlantic Economic Society conference, October 6–9, 2005, New York, NY for helpful comments on an earlier version of this paper.
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Brzeszczyński, J., Gajdka, J. Dividend-Driven Trading Strategies: Evidence from the Warsaw Stock Exchange. Int Adv Econ Res 13, 285–300 (2007). https://doi.org/10.1007/s11294-007-9077-z
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DOI: https://doi.org/10.1007/s11294-007-9077-z