Returns on high-quality and low-quality preferred stocks in periods of common-stock dividend reductions

This study compares the pre‐event return behavior of low‐quality and high‐quality nonconvertible preferred stocks in periods of common‐stock dividend reductions. Using the single‐index model to compute abnormal returns, the cumulative average residuals of low‐quality preferred stocks are significantly negative while those of the high‐quality group show a small, positive drift over the 12‐month period preceding the announcement month.