Date of Award

Summer 8-2021

Document Type

Dissertation

Degree Name

Doctor of Business Administration (DBA)

First Advisor

Jungshik Hur

Abstract

We test the role of dividends and investor sentiment in the relation between idiosyncratic risk and expected returns because Pastor and Veronesi (2003) find evidence that dividends reduce firm-specific uncertainty by sending information to the market participants through dividends. Also, Baker and Wurgler (2006) document that the negative relation between idiosyncratic risk and expected return only exists under the optimistic sentiment. We first document that the negative relation between idiosyncratic risk and expected return is more concentrated for stocks without dividends than stocks with dividends. We further find that the role of dividends in the relation between idiosyncratic risk and expected return is not affected by investor sentiment. These findings are robust to weighing schemes of returns and firm characteristics such as beta, size, book-to-market ratio, momentum, and liquidity.

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