From market signals to investor surges—unveiling the fallacy of bird-in-hand in a volatile emerging market

Abstract The paper re-examines the principle of the bird-in-hand under the dynamic situation in the emerging spots market in Pakistan. Our sample consisted of 100 KSE—100 companies dating 2009–2024. The abnormal returns are separated out using an event study model and a rolling window version of the CAPM, and we have constructed a new Dividend Announcement Factor (DAF) to capture systematic variation associated with the payout signals. The evidence proves the bird-in-hand preference defined by cumulative abnormal returns around announcement dates is highly positive. As opposed to conventional yield preference models, the size of the dividend yield is not correlated with the abnormal returns, depicting that the presence of a signal is more important than its strength. The inclusion of DAF in the CAPM increases the explanatory power by an average of 2.84%. These findings imply that current payouts are more important to investors in high-uncertainty markets; the impact, however, seems to be caused by apparent binary signal and not yield maximization. We have also discussed the limitations regarding event clustering and potential omitted variable bias.