Assessment of the Effect of Dividend Volatility on Risk of Stock Returns in Kenyan Listed Firms

Abstract

Standard deviation as a measure of dispersion is employed in measuring historical or realized stock return volatility and also measuring absolute risk of stock returns. In this research a sample of 31 stocks listed in the NSE were selected from a population of 56 stocks listed in the NSE during the study period of January 2010 to December 2010. The sample stocks were sorted into three portfolios of stocks exhibiting high, medium and low risk as measured by standard deviation of stock returns. Discounted dividend variables were regressed against standard deviation of stock returns in a multiple regression model for the three portfolios. The findings indicated that the dividend volatility had a significant positive influence on the high risk portfolio and also had a significant negative influence on the low risk portfolio. The findings implied that stock investors in the NSE can assess dividend volatility when stock investments decisions.