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

M. Kabir Hassan, Anisul M. Islam and Syed A. Basher ()
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Anisul M. Islam: University of Houston-Downtown

Finance from EconWPA

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 risk-return 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.

JEL-codes: G (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cfn, nep-ets, nep-fin and nep-fmk
Date: 2003-10-16
Note: Type of Document - pdf; prepared on win98; pages: 25
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http://129.3.20.41/eps/fin/papers/0310/0310015.pdf (application/pdf)

Related works:
Working Paper: Market Efficiency, Time-Varying Volatility and Equity Returns in Bangladesh Stock Market (2002)
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Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwpfi:0310015

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