This paper hypothesizes that the risk per unit of time and the required rate of return are higher than normal during an event period whose timing can be predicted. Consistent with this hypothesis this paper presents empirical evidence indicating that the unconditional mean rate of return, the variance of stock returns and their systematic risk are higher than ‘usual’ during dividend announcement periods. However, the documented increases in the systematic risk are not large enough to fully explain the ‘excess returns’. This finding is puzzling and hard to reconcile with existing theory.

Financial economists are interested in whether alternative compensation plans are adopted primarily for tax, incentive or signaling reasons. As most compensation plans have tax implications, examining for other effects is difficult. In this paper we examine the stock market reaction to employee stock purchase plans which are ‘non-tax advantageous’ and adopted for incentive/signaling reasons. The results suggest that (1) equity-based compensation schemes have a positive effect on shareholder wealth for reasons other than tax reduction, (2) a motive for adopting these plans is to align managerial and shareholder interests, and (3) equity ownership motivates key executives more than subordinate employees.

This paper analyzes the empirical behavior of stock-return volatilities prior to and subsequent to the ex-dates of stock splits. The evidence demonstrates rather unambiguously that there is, on the average, an approximately 30% ‘arbitrary’ increase in the return standard deviations following the ex-date. The increase holds for both daily and weekly data, and it is not temporary. No explanatory confounding variables, such as institutional frictions affecting price observations, have been identified. We view the findings as being essentially inconsistent with the notion of ‘rational pricing’.