Abstract
The neo-classical finance theory suggests that capital markets can reasonably reflect the value of listed companies, but it ignores the link between the real economy and the capital market. The current study conducts an analysis of the relevance of the stock return volatility to the company’s fundamental variables, with a sample of the stocks listed in the United States during the period 1972–2009. We uncover that the distribution of cash dividends can significantly reduce the stock return volatilities, and without a stable cash dividend policy, stock return volatilities may unrelated to the volatility of the return-on-equity. We guess that cash dividends may be an important link between the real economy and the capital market.
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