Raytheon Stock Returns

Summary of Findings

| | |Daily |Annualized |

|Sample Average |0.040495% |10.651752% |

|Variance | |0.027866% |6.966384% |

|Standard Deviation |1.669297% |26.393909% |

|Std Error of Mean |0.052788% | |

On Wednesday March 25, 2009, Raytheon announced that it would be increasing its annual dividend payout rate by 11 percent from $1.12 to $1.24 per share. The company’s share price jumped by $3.00 over the next 24 hours and continued to climb over the next few months. By mid-May the stock was selling at $48.00 per share (up from $37.00 on March 25). CEO William Swanson stated “Strong financial position, continued confidence in the future and ongoing commitment to shareholders” as the reasons for the dividend increase.[1] Due to the market’s strong reaction from this event, it appears that the dividend increase is highly significant. In order to verify this, we determined whether the actual stock returns for this event were normally distributed. To do this, we compiled data consisting of 1000 daily stock prices for Raytheon. The dates range from 899 days before the announcement of the dividend increase to 100 days after. With this data, we were able to calculate 1000 daily returns throughout the period. We then ran several tests both on the entire group and on samples of 100 in order to determine whether the returns were drawn from a normal distribution. Below are the summary statistics for the data from days 1 to 1000:

The sample average is the arithmetic daily return, the standard deviation is the square root of the variance, and the standard error of the mean is equal to the standard deviation divided by the square root of the sample size (1000 in this case).

The first test we conducted was the KS test. The null hypothesis was that the data are normally distributed. The KS test is...