Do Dividend Yields Affect a Stock Price's Volatility? : Does the Miller & Modigliani Theroem apply to the Euronext and London Stock Exchange?

Background: Investors around the globe have debated, for more than 40 years, about whether the dividend yield has an influence on a stock’s price or not. There are different theories supporting both sides. These theories, however, often simplify the real world and therefore may not apply fully. Purpose: The purpose of this paper is to conduct empirical research on the complicated dividend policy topic and find out whether the dividend yield influences a stock’s price by testing for its effect on stock price volatility. This result finds evidence of whether investors disregard, or regard, any dividend payments and if it influences investors decisions when purchasing stock. Method: We take the top valued companies in the non-financial sector from the LSE and the Euronext between the years 2008 and 2017. We then run a Fixed Effect Model regression taking some of their reported values including their dividend yield and their stock price volatility. Conclusion: Our results indicate that the dividend yield a company pays stockholders has a positive influence on the stock price volatility, thus affecting the prices of stocks. These results counter the MM Theorem and are inconclusive with the main principles of the Bird in Hand Theorem by Gordon (1960) and Lintner (1962)