Abnormal Dividend-Yield Returns and Investment Strategy

Using the Fama-French three-factor model, we set out in this study to verify the existence of abnormal dividend-yield returns in the Taiwan stock markets. The results of our tracking of the sources of abnormal returns indicate that (1) investors are strongly in favor of high-dividend-yield stocks during the first half of the year; and (2) the information effect of dividend announcements may be the major source of abnormal returns. Our forecasts based on dividend-yield forecasts indeed capture most of the abnormal returns. Finally, our results are found to be robust to a wide variety of portfolio formation settings.