Time-varying volatility and equity returns in Bangladesh stock market

Abstract

This article empirically examines the time-varying risk return relationship and the impact of institutional factors such as circuit breaker on volatility for the emerging equity market of Bangladesh [namely The Dhaka Stock Exchange (DSE)] using daily and weekly stock returns. The DSE equity returns show negative skewness, excess kurtosis and deviation from normality. The returns display significant serial correlation suggesting stock market inefficiency. The results also show a significant relationship between conditional volatility and stock returns, but the risk-return parameter is found to be sensitive to choice of samples and frequencies of data. Overall, the coefficient of 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 et al., 1993). While lock-in did not have any overall impact on stock volatility, the imposition of a circuit breaker has contributed significantly to the volatility of realized returns. As a policy to improve the operation of capital market timely disclosure and dissemination of information to the shareholders and investors on the performance of listed companies should be emphasized.

Price Discovery in European Volatility Interruptions

“…However, they remain more conservative about their market risk assessment after volatility interruptions so this tranquillizing eect magnitude is comparable to midday auctions. These results are backed by Basher et al (2007) who nd price uncertainty after volatility interruptions to be sometimes increased or reduced. We therefore conclude that it is wrong to believe such interruptions would automatically initiate a return to smooth and orderly trading but it is dependent upon the auction's contribution.…”

“…Basher, Hassan, and Islam (2007) applied stock-wise GARCH volatility estimation, indicating that although some stocks are followed by decreased price uncertainty, others indicate signicantly increased price uncertainty. This dissent is further driven by the lack of a distinct causal coherence between the volatility interruption itself and subsequent market uncertainty levels.…”

An Empirical Analysis of Higher Moment Capital Asset Pricing Model for Bangladesh Stock Market

“…In order to test whether CAPM is a good indicator of asset pricing in Bangladesh, Rahman, Baten, and Alam (2006) considered Fama and French (1992) methodology and found that the variables have a significant relationship to the stock return. Basher, Hassan and Islam (2007) found that the DSE equity returns show negative skewness, excess kurtosis and deviation from normality. There are some actions (Hussain, Chakraborty, & Kabir, 2008) which can improve the efficiency of the DSE market such as: ensuring asymmetric information among all investors, proper implication of rules of regulatory commission and introducing sophisticated means of investment and tools.…”

Modelling Co-movement of Different Sectors in Dhaka Stock Exchange (DSE) Using Asymmetric BVAR-GARCH Models

“…Based on the findings GARCH (1,1) is found to be the best model. Reference [5] observed a significant negative relationship between conditional volatility and stock returns and attributed circuit breaker as a causal factor that contributed to the volatility of realized returns. Reference [30] examined a wide variety of GARCH models under different distributional assumption but models under Student-t distributional assumptions are found to be suitable for modelling volatility of Chittagong Stock Exchange (CSE).…”