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Market Efficiency, Time-Varying Volatility and Equity Returns in Bangladesh Stock Market

Author

Listed:
  • M. Kabir Hassan

    (University of New Orleans, USA)

  • Anisul M. Islam

    (University of Houston-Downtown, USA)

  • Syed Abul Basher

    (York University, Canada)

Abstract

This paper empirically examines the issue of market efficiency and time-varying risk return relationship for Bangladesh, an emerging equity market in South Asia. The study utilizes a unique data set of daily stock prices and returns compiled by the authors which was not utilized in any previous study. The Dhaka Stock Exchange (DSE) equity returns show positive skewness, excess kurtosis and deviation from normality. The returns display significant serial correlation, implying stock market inefficiency. The results also show a significant relationship between conditional volatility and the stock returns, but the risk-return parameter is negative and statistically significant. While this result is not consistent with the portfolio theory, it is possible theoretically in emerging markets as investors may not demand higher risk premia if they are better able to bear risk at times of particular volatility (Glosten, Jagannathan and Runkle, 1993). While circuit breaker overall did not have any impact on stock volatility, the imposition of the lock-in period has contributed to the price discovery mechanism by reverting an overall negative riskreturn time-varying relationship into a positive one. As a policy to improve the capital market efficiency, the timely disclosure and dissemination of information to the shareholders and investors on the performance of listed companies should be emphasized.

Suggested Citation

  • M. Kabir Hassan & Anisul M. Islam & Syed Abul Basher, 2000. "Market Efficiency, Time-Varying Volatility and Equity Returns in Bangladesh Stock Market," Working Papers 2002_6, York University, Department of Economics, revised Jun 2002.
    • Handle: RePEc:yca:wpaper:2002_6
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    References listed on IDEAS

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    Cited by:

    1. Hunjra, Ahmed Imran & Azam, Muhammad & Niazi, Ghulam Shabbir Khan & Butt, Babar Zaheer & Rehman, Kashif-Ur- & Azam, Rauf i, 2010. "Risk and return relationship in stock market and commodity prices: a comprehensive study of Pakistani markets," MPRA Paper 40662, University Library of Munich, Germany.
    2. Alam, Md. Mahmudul & Uddin, Gazi Salah, 2019. "The Impacts of Interest Rate on Stock Market: Empirical Evidence from Dhaka Stock Exchange," OSF Preprints r3jpx, Center for Open Science.
    3. Shahadat Hussain & Sujit Kumer Deb Nath & Md. Yeasir Arafat Bhuiyan, 2016. "Weak Form Efficiency of the Chittagong Stock Exchange: An Empirical Analysis (2006-2016)," International Journal of Business and Social Research, MIR Center for Socio-Economic Research, vol. 6(11), pages 58-66, November.
    4. Amir Rafique, 2011. "Comparing the Leverage Effect of Different Frequencies of Stock Returns in an Emerging Market: A Case Study of Pakistan," Information Management and Business Review, AMH International, vol. 3(6), pages 283-288.
    5. Tahsina Haque Simu, 2012. "Randomness in CASPI (CSE All Share Price Index): An Empirical Study," Indian Journal of Commerce and Management Studies, Educational Research Multimedia & Publications,India, vol. 3(2), pages 01-05, May.
    6. Taslim Hasan & Md. Shamimul Islam, 2012. "Capital Market Debacle in Bangladesh: In-Depth Inspection," International Journal of Business and Social Research, LAR Center Press, vol. 2(1), pages 89-97, February.
    7. Amir Rafique, 2011. "Comparing the Volatility Clustering Of Different Frequencies of Stock Returns in an Emerging Market: A Case Study of Pakistan," Journal of Economics and Behavioral Studies, AMH International, vol. 3(6), pages 332-336.
    8. Farjana Nur Saima & Ratan Ghosh, 2024. "Is the capital market of Bangladesh ready to reap the benefits of voluntary integrated reporting disclosures? Insights from the equity investment experts," International Journal of Disclosure and Governance, Palgrave Macmillan, vol. 21(4), pages 589-611, December.
    9. Taslim Hasan & Md. Shamimul Islam, 2012. "Capital Market Debacle in Bangladesh: In-Depth Inspection," International Journal of Business and Social Research, MIR Center for Socio-Economic Research, vol. 2(1), pages 89-97, February.
    10. Alam, Md. Mahmudul & Yasmin, Shakila & Rahman, Mahmudur & Uddin, Gazi Salah, 2019. "Effect of Policy Reforms on Market Efficiency: Evidence from Dhaka Stock Exchange (DSE)," OSF Preprints m5gsr, Center for Open Science.
    11. Shahadat Hussain & Sujit Kumer Deb Nath & Md. Yeasir Arafat Bhuiyan, 2016. "Weak Form Efficiency of the Chittagong Stock Exchange: An Empirical Analysis (2006-2016)," International Journal of Business and Social Research, LAR Center Press, vol. 6(11), pages 58-66, November.

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