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

  • M. Kabir Hassan

    (University of New Orleans)

  • Anisul M. Islam

    (University of Houston-Downtown)

  • Syed Basher

    (York University)

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.

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File URL: http://128.118.178.162/eps/fin/papers/0310/0310015.pdf
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Paper provided by EconWPA in its series Finance with number 0310015.

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Length: 25 pages
Date of creation: 16 Oct 2003
Date of revision:
Handle: RePEc:wpa:wuwpfi:0310015
Note: Type of Document - pdf; prepared on win98; pages: 25
Contact details of provider: Web page: http://128.118.178.162

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  17. Ma, C.K. & Rao, R.P. & Sears, R.S., 1989. "Volatility, Price Resolution, And The Effectiveness Of Price Limits," Papers t7, Columbia - Center for Futures Markets.
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  22. Mauro Mecagni & Maged Sawky Sourial, 1999. "The Egyptian Stock Market; Efficiency Tests and Volatility Effects," IMF Working Papers 99/48, International Monetary Fund.
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