Kwame Nkrumah University of Science and Technology

Abstract

The Efficient Market Hypothesis (EMH) provides that security prices reflect all available information. However, despite dividend announcements made in 2005, three companies selected for study performed badly on Ghana Stock Exchange (GSE). The problem of the study was therefore to establish whether the GSE did not recognize company-specific information in pricing shares. The purpose of the study was to ascertain whether there was an instantaneous reaction of the companies’ share prices to dividend announcement in order to provide the basis for confirming or dispelling the EMH conclusions as far as the Ghana Stock Exchange was concerned. The event study methodology was used to achieve the research objective. Additionally, the Wilcoxon Matched-Pair signed-Ranked Test was employed in testing the null hypothesis. The major finding was that the GSE was not semi-strong efficient resulting in the conclusion that the GSE must address itself to three forms of efficiency – operational efficiency, allocation efficiency and pricing efficiency.