Determinants of Share Price Volatility: A Theoretical Review towards Revitalizing Fundamental Analysis
Journal Title: Scholars Journal of Economics, Business and Management - Year 2015, Vol 2, Issue 6
Abstract
Abstract: In seeking to explain the determinants of share price volatility, empirical direction has been provided by return generating models. To read these models are used to estimate the expected returns on risky securities. This paper argues that especially in respect to frontier economies such as the ones found in developing countries, the role of fundamentals in explaining share price volatility cannot be gainsaid. This paper therefore attempts to answer a common yet essential question: what are the key theoretical underpinnings which may support an empirical enquiry on share price volatility centred on a fundamental analysis? Based on dividend relevance theory this study posits that dividend expressed either as dividend yield or pay out does not influence share price volatility. Conversely the dividend irrelevance theory does postulate the inverse. When complemented by efficient market hypothesis, this review posits that there is a significant relationship between historical financial performance and share price volatility. In a nutshell these postulations can be transformed into hypotheses for testing towards conducting deductive quantitative study as expected among applied finance scholars. It is expected that the extraction of such empirical evidence will confirm the place of this theories in understanding security market dynamics especially in frontier economies. Keywords: share price volatility; fundamental analysis; dividend theory; efficient market hypothesis.
Authors and Affiliations
Muchina Stephen, Namusonge Gregory, Sakwa Maurice
Keywords
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