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. The author examines 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. The research shows that in most cases the inclusion of daily dividends significantly reduces the daily volatility of returns. Also, with a few exceptions, the VaR of the remaining stocks’ return declines substantially, decreasing the maximum expected loss of return. Finally, after inclusion of a daily dividend, the author finds that a more extended holding period offers a proportionately lower VaR of the daily return.