A Test of Market Efficiency When Short Selling Is Prohibited: A Case of the Dhaka Stock Exchange

Sochi, Maria; Swidler, Steve

doi:10.3390/jrfm11040059

Cited by 3 publications

(5 citation statements)

References 47 publications

(18 reference statements)

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“…under the surveillance functions of price and position monitoring are exercised in DSE (https://www. dsebd.org/ accessed July 28, 2021; Basher et al, 2007;Sochi & Swidler, 2018). These measures may have contributed to curb the asymmetric effects of news.…”

Section: Resultsmentioning

confidence: 99%

“…Regulatory intervention through measures such as the circuit-breakers system, prohibition of short sale under the short sale regulation of 2006, and communication with stakeholders through online news bulletin with the verified price sensitive corporate news and rumor and daily scrutiny of press articles etc. under the surveillance functions of price and position monitoring are exercised in DSE (https://www.dsebd.org/ accessed July 28, 2021; Basher et al, 2007; Sochi & Swidler, 2018). These measures may have contributed to curb the asymmetric effects of news.…”

Section: Resultsmentioning

confidence: 99%

“…Glaser and Weber (2007) found evidence in favor of this prediction for market participants who rank themselves above others. In case of DSE, the empirical finding of the presence of informational inefficiency in Sochi and Swidler (2018) and Mobarek et al (2008), perhaps, signals the impact of such restrictions on traders’ confidence. See Reed (2013) for more details on short-selling and its role in financial markets.…”

Section: Resultsmentioning

confidence: 99%

“…With reference to DSE, the prohibition of short-selling, as argued by Sochi and Swidler (2018), hinders the price discovery process, and therefore, market efficiency. The prohibition also has the potential to influence overconfident investors and traders and negatively affects trading volume as envisaged by the over-confidence literature (Daniel & Hirshleifer, 2015; Glaser & Weber, 2007).…”

Section: Resultsmentioning

confidence: 99%

“…During the last decade or so, several studies have investigated a number of pertinent issues regarding the functioning of DSE, Bangladesh. Examples of such issues include non-normality, volatility clustering, presence of autoregressive conditional heteroscedasticity (ARCH) and generalized autoregressive conditional heteroscedasticity (GARCH) effects in stock returns (Aziz & Uddin, 2014; Basher et al, 2007; Bose & Rahman, 2015; Siddikee & Begum, 2016), role of trading volume in reducing stock return volatility (Bose & Rahman, 2015), role of regulators and return volatility (Rahman & Golam Moazzem, 2011), impact of lock-in and circuit breaker measures in curbing return volatility (Basher et al, 2007), impact of circuit breaker measure in halting trade (Chowdhury & Masuduzzaman, 2010), effect of dividend policy on stock prices (Masum, 2014), day-of the week effects in stock returns (Bose & Rahman, 2015; Rahman, 2009), herding behavior among traders and seasonal influence (Ahsan & Sarkar, 2013; Bepari & Mollik, 2009), relationship between financial leverage and stock returns at firm level (Abdullah et al, 2015), stock market reaction to dividend announcement (Hossain et al, 2006; Rahman et al, 2012), market and informational inefficiency (Afzal & Hossain, 2011; Arefin & Rahman, 2011; Joarder et al, 2014; Mobarek et al, 2008), disparity in trading behavior of investors with respect to gender, age and education level (Arifuzzaman et al, 2012), prohibition of short-selling and market inefficiency (Sochi & Swidler, 2018), among others.…”

Section: Introductionmentioning

confidence: 99%

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Are News Effects Necessarily Asymmetric? Evidence from Bangladesh Stock Market

Bose¹,

Rahman

2022

SAGE Open

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The primary objective of this paper is to empirically examine the nature and statistical significance of the news effect on conditional volatility of unpredictable components of stock returns. Daily stock return data of 12 local and multinational companies on Dhaka Stock Exchange Ltd., Bangladesh, for the period 1990 to 2011 were used in this study. The likelihood of asymmetric effects of news on conditional volatility was tested using a set of diagnostics under the Generalized Autoregressive Conditional Heteroscedasticity (GARCH) framework. The results fail to reject the null hypothesis of symmetric effects, thereby suggesting that the conditional volatility of unpredictable components of stock returns is affected equally by positive and negative news. The robustness of the results was further checked by using three widely used asymmetric models, namely exponential GARCH (EGARCH), Glosten, Jagannathan & Runkle (GJR)-GARCH, and a partially non-parametric Autoregressive Conditional Heteroscedastic (PNP-ARCH) models. Yet again, the results do not provide any evidence of significant asymmetric effects in the volatility process. In addition, the descriptive results confirm the stylized facts of unpredictable return series such as non-normal distribution, time variant conditional volatility, and persistence in return volatility. Collectively these findings, perhaps, indicate the adequacy of the GARCH (1,1) model in representing the data generating process. A number of regulatory and behavioral factors that are anticipated to be accountable for the absence of asymmetric news effects are underlined. Finally, some policy implications of the results and possible extensions of the present paper are also conveyed. JEL codes: G10, G12, G14

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Section: Resultsmentioning

confidence: 99%

Section: Resultsmentioning

confidence: 99%