Determinants of share price volatility: evidence from financial sector of Pakistan

Abstract

This study investigates the relationship between dividend policy by taking "dividend yield and dividend payout" as an independent variable and the volatility of the share price as a dependent variable. Data is taken from PSX listed 18 financial institutions for the period of ten-year from 2008 to 2017. Fixed effect regression model used for the analysis of panel data which was obtained from the annual Financial reports of the companies, the empirical outcomes shows that there is a significant negative relationship among the Dividend Yield and Payout Ratio with shares price volatility, and a positive relationship between the Assets growth and she re price volatility. This is consistent with the findings of Allen and Rachim (1996). And the conclusion on the “Dividend Payout” is in line to Baskin's (1989) conclusions. The general results suggest that if higher the "Payout Ratio", than share price will be less volatile. They also suggest that the "Payout Ratio" is the main determinant of the volatility of the share price. Among the control variables, it emerged that assets growth had the highest correlation with price volatility. While the size had a significant negative relationship with price volatility, which suggests that the larger the company, the less volatile the stock price. This research also shed light on the path to find out how the stock price moves, as well as the important factors that should be considered by the shareholders. Investors and administrators of company before making investment decisions and formulating dividends Policies.