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

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.