DefinePK

Abstract

This study analyzes the joint effects of dividend policy, the volatility of earnings, and macroeconomic factors such as gross domestic product (GDP) growth and the interest rate (which we treat as the cost of capital) on the volatility of stock prices of non-financial corporations listed in the Pakistan Stock Exchange (PSX). Based on the secondary data of 179 firms for the period 2019–2023, the research design is quantitative and employs panel regression to study the volatility determinants at both the micro and macro levels. The results indicate that the stock price volatility is significantly and negatively associated with the dividend policy, suggesting that the uncertainty and the market volatility is lower as more constant dividends are paid. The volatility of earnings and interest rate, on the contrary, are positively and significantly associated, suggesting that lower the earnings and interest, the more unstable the stock market is. The growth of the GDP is negatively associated with the volatility but is only weakly significant; thus, growth of the economy helps to stabilize the market. The research empirically supports the applicability of the Bird-in-Hand, Signaling and Modern Portfolio theories for the emerging economy context. These findings reinforce the need for stable dividend policies, earnings stability, and appropriate governance at the macroeconomic level to sustain the lower market volatility and boost the investors’ confidence.