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An empirical investigation of the arbitrage pricing theory in a frontier stock market: evidence from Bangladesh

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  • FARUQUE, MUHAMMAD U

Abstract

Although the existing literature of Arbitrage Pricing Theory (APT) on different categories of stock markets is vast, it is non-existent in the case of frontier stock markets (defined as very small capital markets). This paper fills this gap by investigating how APT performs in a frontier stock market. To address the common problem of multi-collinearity in macro variables, this study uses principal component analysis (PCA) as a robustness check on the previous results. The results confirm evidence of one significant macroeconomic factor in the Dhaka stock market - a frontier stock market of Bangladesh. This result is comparable to that of some emerging (larger than frontier markets) stock markets.

Suggested Citation

  • Faruque, Muhammad U, 2011. "An empirical investigation of the arbitrage pricing theory in a frontier stock market: evidence from Bangladesh," MPRA Paper 38675, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:38675
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    References listed on IDEAS

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    More about this item

    Keywords

    Key words: Arbitrage pricing theory (APT); Capital-asset pricing model; Dhaka stock exchange (DSE); Principal component analysis; Principal components (PC); Efficiency market hypothesis (EMH) and Chen; Roll and Ross (CRR);
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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