Effect Of Dividend On Share Price Volatility In Frontier Exchanges: Kenya’s Perspective

Abstract

Equity investors are faced by very pertinent decisions in the course of their portfolio management such as how to manage the share price volatility. While the extent to which dividend influences volatility is not contentious, the most suitable proxy between the two measures: dividend yield or pay-out is especially in a frontier market is. This study using prices and company performance data of firms listed in Nairobi Stock Exchange performed a cross-sectional analysis for the period 2013-2014. Significant positive association between dividend and share price volatility has been found. Multicollinearity is present between dividend yield and dividend payout which is extended by low R² when yield is regressed against price volatility. The study not only confirms that dividend payout as a predominant determinant but the only credible determinant (as a proxy variable for dividends) of share price volatility in a frontier market. Evidence deduced confirms congruence to dividend relevance accompanied by weak market efficiency.

Keywords: share price volatility; dividend; dividend pay-out; dividend yield; proxy variable; technical and fundamental analysis