Dividend Exposure and Risk Adjusted Stock Returns: Empirical Evidence from Emerging Economy

Abstract

Abstract

The core objective of financial management is to maximize the wealth of shareholders. The dividend relevance and irrelevance and its role in firm’s value have always been a conflicting debate in the area of corporate finance while investors always look for securities of the highest expected return at a given level of risk.  The objective of the current study is to empirically investigate the risk-adjusted performance of 12 portfolios of dividend exposure and no-dividend exposure according to size and market-to-book value. The data of companies listed in PSX was utilised from 2014 to 2022. The portfolio performance was analyzed with the Sharpe Ratio, Jensen alpha and Treynor ratio with the Python pandas library. The findings of the study reported that absolute risk is lower for dividend-paying stocks with CV(5.6%) than non-dividend-paying stocks with CV(6.45%), further, the relative risk measure have a significant value of β (0.9) for non-dividend-paying portfolios in comparison to blend portfolio β(0.7)  and dividend-paying portfolio β(0.8) highlighting that lowest systematic risk for blend portfolio of stocks. The originality of the studies is to explore the volatility of portfolios in the perspective of the emerging economy of Pakistan. The findings are of great importance to investors, and fund managers, to efficiently allocate funds for optimal returns.

       Keywords: dividend exposure, portfolio, investment decisions, firm performance, payout policy

      JEL Classification: G11: portfolio choice O31: Firm performance, G35: payout policy.