The Study Of The Influence Of Dividend Policy On Stock Price Volatility

China’s stock market has undergoing great development along with the rapid evolution of China’s economy since its inception in early1990s, it also have became the focus in recent years as the formation of the public awareness of investments. However, it cannot be denied that there are lots of problems in china’s stock market, one of which is that the market is filled with speculative emotion and the concept of rational investment is hardly accepted by investors. Some scholar asserts that this problem is attributed to the fact that listed companies in China usually have a low level of dividends. Under this situation, the role of dividends to sending fundamental information to public has ignored and the price of share may move out of line of company’s intrinsic value and fluctuation irrationally; on the other hand, investor who can’t gain from dividends has to resort to buy and sell shares frequently and magnify the price volatility, therefore. Upon this point of view, the paper conducts a study of the relationship between dividend policy and stock price volatility, and research on the influence of dividend policy on stock price volatility.In this paper, we start with a theoretical analysis of the influence of dividend on stock price volatility based on the perspective of duration effect and rate of rate effect after necessary literature review. Thereafter, the study of China’s stock market and listed companies is conducted; we firstly explain current dividend policy of China’s listed companies and further analysis the causes of this situation. After that, a formal empirical study of the influence of dividend policy on stock price volatility focus on China’s listed companies is conducted. In this paper,695stocks in2001-2010is used as the study objects, we firstly compare the differences of price volatility between various groups of stocks, the groups is distinguish by dividend policy style in recent years; subsequently, we use dividend as a dummy variable in our research to study the impact of dividend on stock price volatility; lastly, we will conduct regression analysis on different group of stocks to investigate some probable further conclusion.Based on the conclusions of pervious empirical study, we find that dividends and stock dividends are negatively related to stock price volatility in China’s stock market; it means that dividend policy of China’s listed company may have the effect of stabilize the fluctuation of stock price. We also found that the volatility of stocks with higher level of cash dividends is related to company’s fundamental information significantly. Meanwhile, volatility of stocks which never pay dividends is unrelated to fundamental information; it implies that cash dividends may suppress stock price from irrationally fluctuating out of line of company’s intrinsic value.It is not uncommon to find researches on dividend policy or stock price volatility in academic field, but the study of the relationship between them is rare. Main innovations of this paper can be summarized as following:1) The study focuses on stock dividends as well as cash dividends. Stock dividends is common in China’s stock market but the researches on them is rare, the study take stock dividends into consideration and obtained significant conclusion on it.2) The paper treats dividend as a dummy variable as well as an indicator of grouping. On the one hand, we come to the conclusion of the influence of onetime dividend on stock price volatility; on the other hand, we can understand the volatility features of different group of stocks.The empirical study suggesting that dividend is helpful to lower the volatility of stock price, it can be treated as an assertive evidence of requiring listed companies to issuing cash dividends. Additionally, we have got a manner to stabilize stock price fluctuation in China’s stock market from this study.