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Effect of dividend policy on stock price volatility in the Dow Jones U.S. index and the Dow Jones islamic U.S. index: evidences from GMM and quantile regression

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  • Suwanhirunkul, Prachaya
  • Masih, Mansur

Abstract

The relationship between stock price volatility and dividend policy remains a “puzzle” with conflicting evidences. The objective of this study is to attempt to shed light on this debate with the help of relatively advanced GMM methods and quantile regressions on the stocks listed in the Dow Jones U.S. Index and Islamic stocks based on the Dow Jones Islamic U.S. Index. Our data is unbalanced panel data consisting of two samples for all stocks (2456 companies) and Islamic stocks (589 companies) in the Dow Jones U.S. Index from the year 2005 to 2017. Our main findings suggest that dividend policy in both samples contributes a minor component to explaining stock price volatility and is becoming less relevant for the overall market. However, dividend yield shows positive relationship with stock price volatility when analyzed based on each class of stocks in the Dow Jones Islamic U.S. Index. Thus there could be a clientele effect in each class of stock for Islamic stocks. It is hoped that the findings of this study would contribute to dividend policy literature and Islamic equity literature.

Suggested Citation

  • Suwanhirunkul, Prachaya & Masih, Mansur, 2018. "Effect of dividend policy on stock price volatility in the Dow Jones U.S. index and the Dow Jones islamic U.S. index: evidences from GMM and quantile regression," MPRA Paper 93543, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:93543
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    9. Syed Akif Shah & Umara Noreen, 2016. "Stock Price Volatility and Role of Dividend Policy: Empirical Evidence from Pakistan," International Journal of Economics and Financial Issues, Econjournals, vol. 6(2), pages 461-472.
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    Cited by:

    1. Irton Irton, 2020. "The Influence of dividend policy on sharia stock price volatility:A study on Indonesian stock exchange," International Journal of Research in Business and Social Science (2147-4478), Center for the Strategic Studies in Business and Finance, vol. 9(7), pages 84-92, December.
    2. Krishnamoorthy Charith & Andrey Davydenko, 2021. "Informational Value of Dividend Initiations: Impact of Cash Dividends on Share Prices of Manufacturing Companies in Sri Lanka," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 13(3), pages 1-13, March.
    3. Andrey Davydenko & Krishnamoorthy Charith, 2021. "Informationswert von Dividendenausschüttungen: Einfluss von Bardividenden auf die Aktienkurse von produzierenden Unternehmen in Sri Lanka [Informational value of dividend initiations: Impact of cas," Post-Print hal-03359177, HAL.

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    More about this item

    Keywords

    Dividend policy; stock price volatility; Islamic U.S. index; GMM; Quantiles;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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