The stock market returns are the readily available tool for the investor to make investment decision and stock market return are affected by many accounting variables. Dividend policy measures and stock return relationship has been examined from decades but result is still a dilemma. This study is a step forward to solve this dilemma by considering Karachi stock exchange, Pakistan and Nordic stock markets and conducting a comparative study to also provide a knowledge base to readers. Dividend yield ratio, dividend payout ratio and other accounting variables are examined to find their effect on stock return. Pooled least square regression has been used on the data ranging from 2005-2008 and findings are different in different markets. Dividend policy measures (dividend yield ratio and dividend payout ratio) have significant effect on the stock return and in most countries there is significant negative relationship.

The objective of this study is to examine the dividend policy measures effect on the stock prices. A sample of 171 listed companies from Karachi Stock Exchange, Pakistan is examined for a period from 1998 to 2006. The dependent variable stock price volatility is regressed against the dividend policy measures (independent variables) e.g., dividend yield, dividend payout ratio, actual cash dividends and dividend to total assets of the firm, after controlling for firms’ profitability, liquidity, gearing, size and growth. This study finds that, dividend policy measures have strong effect on the stock market prices but results are contradictory to earlier research in Pakistan. Dividend payout and actual cash dividends have negative, significant relationship with stock prices and dividend yield have significant positive relationship with stock market prices.