BOOM, BUST AND BEYOND: TIME SEGMENTED ANALYSIS OF DIVIDEND YIELD AND STOCK RETURN DYNAMICS IN

Abstract

This study investigates the impact of dividend yield on stock returns in Pakistan’s oil and gas sector, with particular focus on how this relationship varies under different economic conditions. Using panel data from 11 listed firms covering 2005–2013, the research applies Fixed Effects estimation with cluster-robust standard errors after addressing heteroskedasticity and cross-sectional dependence issues. Two models were employed: an aggregate model for the full sample and a time-segmented model distinguishing pre-crisis, crisis, and post-crisis phases. Results reveal that dividend yield has a significant negative effect on stock returns in the aggregate model, suggesting that higher payouts during stable periods may signal limited growth opportunities. However, during the post-crisis phase, the relationship becomes positive and significant, highlighting the signaling role of dividends in restoring investor confidence. The crisis period shows no significant change, and Beta, included as a control variable remains statistically insignificant across models. The key contribution of this study lies in applying a time-segmented approach to explore dividend–return dynamics in an emerging market context while controlling for market-wide risk exposure through Beta. This approach offers a more nuanced understanding of how payout policies operate under varying economic conditions. The findings carry implications for managers to align dividend strategies with economic cycles, for investors to incorporate macro conditions into decision-making, and for regulators to enhance transparency to reduce information asymmetry.

Keywords: Dividend Yield, Stock Returns, Financial Crisis, Time Segmented Analysis, Pakistan.