An examination of long-term abnormal stock returns following stock dividends

With 185 months Chinese capital market data, this paper proves that the Fama-French Three-Factor Model has an excellent explanation on the cross-sectional variation in average stock returns. Furthermore, the examination of long-term abnormal stock returns following stock dividends based on the three-factor model and zero-investment portfolio model shows that the corporations which have stock dividends suffered a lower returns compared to their matched firms which don´t have the same company event. The results suggest that the long-term investment on such firms is not beneficial, which is a negative evidence of the signaling hypothesis.