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Regina Galati ’01 of McMurray, Pa., a graduate of Canon-McMillan Senior High School, is hoping to uncloak some of the workings of the stock market in an honors thesis that focuses on dividend payments and their impact on the price of shares.

Under the guidance of Donald R. Chambers, the Walter E. Hanson/KMPG Peat Marwick Professor of Business and Finance, Galati is examining different types of stocks and whether their prices drop by the amount of the dividend, reflecting an influential financial theory.

Galati, who was elected to Phi Beta Kappa as a junior last spring, says the efficient-market hypothesis suggests that in an ideal world, the price of stocks should dip by the amount of the dividend itself, since as the company makes the payment to shareholders, it becomes a little bit poorer.

“A dividend is a claim on a corporation, and when it sends it to shareholders, the value of the corporation falls,” Chambers adds. The author of numerous articles and books on financial matters, Chambers is a consultant to investment firms and banks and is called on frequently to serve as an expert witness, especially in securities litigation. Last year, Chambers and Susan L. Averett, associate professor of economics and business, were thesis advisers to Braeden Rogers ’00 of Plainfield, N.J., who investigated whether race is a significant factor in the decision to invest in common stocks.

Galati says that in the real world, shareholders often expect this to happen, but then the dip in the stock price creates the perception that the corporation is undervalued and stock is a good buy. As a result, the price may bounce up again.

Galati is examining preferred stocks, real estate investment trusts, closed-end mutual funds, utilities and NASDAQ and New York Stock Exchange shares.

“I’m seeing which hold closer to the theory than others,” says Galati. “I may also trend 10 days before and after ex-dividend day. We’ll get data from an entire year, but I’m not sure that we’ll use it.”

Galati says she fell in love with the stock market during a visit to the New York Stock Exchange. She says she finds the market’s unpredictability interesting, along with the psychology behind the reactions of stockholders and investors.

“I wanted to do an honors thesis because it would be a good overall experience and challenge for me,” she says. “I am hoping to work in the field of investments after graduation. This project is allowing me to explore some of the inner workings involved in the price movements of securities.

“The Lafayette faculty and the classes I’ve taken have really provided me with a good foundation with which to start the project and a good understanding of the basics of my topic,” she continues.

Galati says she appreciates the personal attention Lafayette affords, including the help she got from professors in finding an internship near her hometown in the Pittsburgh area. “It’s great to know they really care about my success as a person and as a student,” she says.

For Galati, a catcher on the varsity softball team, the thesis research will require a delicate balance of time next spring. “But my professors have been very persuasive in telling me they know I can do it,” she says, adding that she plans to take a laptop computer on road trips during the season.

Categorized in: Academic News