To further the comprehension of the behavioral underpinnings of corporate dividend policy, researchers must be willing to accept the notion of bounded rationality as it pertains to the dividend decision phenomenon. By example, a parallel between the customs of payment of dividends and the potlatch is drawn. While both are long enduring institutions, neither is explainable solely by a pure economic maxim. An alternative avenue of reconciling dividend policy with observable behavior is suggested. This study examines call option recommendations of analysts quoted weekly in Barron's.
Results show that stock prices rose prior to the publication date and fell thereafter.
Calls purchased by the public on the publication date or by clients at the time the recommendations were identified earned insignificant returns if held to expiration. Calls purchased by clients at the time of the recommendations and sold on the publication date earned a significant mean return of ten percent, which is not annualized and generated over at most five days. However, these returns appeared to be consumed by the risk inherent in call option buying. It is conjectured that on a thin security market it might be possible to earn positive abnormal returns. All the classical risk-adjusted performance measures produce analogous results.