Good News and Bad News on Speed of Stock Price Adjustment in Thailand

Abstract

This study examines the speed of stock price adjustment towards corporate dividend announcement of listed companies in the Stock Exchange of Thailand (SET) and the Market for Alternative Investment (mai). The sample consists of 548 listed companies with 4,500 dividend announcement events during the period 2002–2022. This empirical research employs the event study methodology and the partial price adjustment model to measure the speed of stock price adjustment. Cumulative abnormal returns (CAR) are employed as a proxy for market reaction to new information. Multiple regression analysis using ordinary least squares (OLS) is employed to test the hypotheses. The results indicate that stock prices adjust gradually and do not fully incorporate new information immediately. In addition, the study finds an asymmetric adjustment speed between good news and bad news, where stock prices respond more slowly to bad news than to good news. Specifically, the variable for bad news shows a statistically significant negative relationship with the speed of adjustment at the 1% significance level across all tested periods (Dividend Announcement Day to Day 5 post-announcement), with coefficients ranging from -0.075 to -0.135. These findings provide important implications for investors and market regulators in developing investment strategies and disclosure policies. This finding is theoretically consistent with short-selling constraints and behavioral factors, particularly investors' tendency to hold losing stocks in their portfolios, which may contribute to the delayed price adjustment observed following negative news.