This study examines the interplay of dividend salience and inflation illusion in the Taiwanese stock market. Building on research demonstrating that investors may exhibit a "dividend disconnect" – overemphasizing dividends while under-appreciating the impact of price changes on returns – this study investigates whether this behavioral bias is amplified during periods of high inflation. We hypothesize that investors, influenced by inflation illusion, may focus on the nominal value of dividend payments, overlooking the erosion of their real purchasing power in inflationary environments. This overemphasis on nominal dividend income, coupled with a potential underestimation of inflation's effect on overall portfolio returns, could lead to exaggerated mispricing and suboptimal investment decisions. Using data from the Taiwan Stock Exchange, we investigate how inflation rates affect investor preferences for dividend-paying stocks and whether this relationship is moderated by the salience of dividend announcements. The findings have implications for investors navigating inflationary environments and policymakers considering the unintended consequences of inflation on market efficiency, particularly in economies with strong dividend cultures.

Authors:
Ko-Chia Yu, National Taipei University, Taiwan

About the Presenter(s)
Dr. Ko-Chia Yu is an Assistant Professor in Finance at National Taipei University, Taiwan. His research focus on corporate governance, ESG and how companies interact with each other through supply chains.

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