Do Daily Dividends Reduce Stock Return Volatility and Value at Risk?

Abstract

This study offers a daily dividend computation model and extends the two conventional arithmetic and logarithmic return equations to include daily dividend. We examine the effect of daily dividend inclusion on the daily return volatility and Value at Risk (VaR) of the five stocks listed in the Dhaka Stock Exchange (DSE) Limited. Our research shows that in most cases the inclusion of daily dividends significantly reduces the daily volatility of returns. Also, with a few exceptions, the value at risk (VaR) of the remaining stocks’ return declines substantially, decreasing the maximum expected loss of return. Finally, after inclusion of a daily dividend, we find that a more extended holding period offers a proportionately lower VaR of the daily return.