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Time-varying volatility and equity returns in Bangladesh stock market

Author

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  • Syed Basher
  • M. Kabir Hassan
  • Anisul Islam
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.

Suggested Citation

  • Syed Basher & M. Kabir Hassan & Anisul Islam, 2007. "Time-varying volatility and equity returns in Bangladesh stock market," Applied Financial Economics, Taylor & Francis Journals, vol. 17(17), pages 1393-1407.
  • Handle: RePEc:taf:apfiec:v:17:y:2007:i:17:p:1393-1407
    DOI: 10.1080/09603100600771034
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    References listed on IDEAS

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    Cited by:

    1. Md. Noman Siddikee & Noor Nahar Begum, 2016. "Volatility of Dhaka Stock Exchange," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 8(5), pages 220-229, May.
    2. Abdullah M. Noman & Sarkar Humayun Kabir & Omar K.M.R. Bashar, 2012. "Causality between stock and foreign exchange markets in Bangladesh," Studies in Economics and Finance, Emerald Group Publishing Limited, vol. 29(3), pages 174-186, July.
    3. Roni Bhowmik & Wu Chao & Jewel Roy Kumar & Wang Shouyang, 2017. "A Study on the Volatility of the Bangladesh Stock Market — Based on GARCH Type Models," Journal of Systems Science and Information, De Gruyter, vol. 5(3), pages 193-215, June.
    4. Mohammad Masudur Rahman & Laila Arjuman Ara & Zhenlong Zheng, 2009. "Jump, Non-Normal Error Distribution And Stock Price Volatility — A Nonparametric Specification Test," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 54(01), pages 101-121.
    5. Saif Hossain, 2013. "The Impulsive Stock Market of Bangladesh and the Great Recession," International Journal of Business and Social Research, LAR Center Press, vol. 3(3), pages 126-139, March.
    6. Shekar Bose & Hafizur Rahman, 2022. "Are News Effects Necessarily Asymmetric? Evidence from Bangladesh Stock Market," SAGE Open, , vol. 12(4), pages 21582440221, October.
    7. Walid Abass Mohammed, 2021. "Volatility Spillovers among Developed and Developing Countries: The Global Foreign Exchange Markets," JRFM, MDPI, vol. 14(6), pages 1-30, June.
    8. Shekar Bose & Hafizur Rahman, 2015. "Examining the relationship between stock return volatility and trading volume: new evidence from an emerging economy," Applied Economics, Taylor & Francis Journals, vol. 47(18), pages 1899-1908, April.
    9. Chu V. Nguyen & Anisul M. Islam & Muhammad Mahboob Ali, 2011. "The Current State of the Financial Sector of Bangladesh: An Analysis," AIUB Bus Econ Working Paper Series AIUB-BUS-ECON-2011-03, American International University-Bangladesh (AIUB), Office of Research and Publications (ORP), revised Nov 2011.
    10. Faruque, Muhammad U, 2011. "An empirical investigation of the arbitrage pricing theory in a frontier stock market: evidence from Bangladesh," MPRA Paper 38675, University Library of Munich, Germany.
    11. Aviral Kumar Tiwari & Anisul M. Islam & Md. Mohibul Islam, 2019. "Relationship between Exchange Rate and Equity Prices in an Emerging Market: A Continuous Wavelet-based Analysis for Bangladesh," International Journal of Business and Economics, School of Management Development, Feng Chia University, Taichung, Taiwan, vol. 18(2), pages 165-193, September.
    12. Ehsan, Zaeem-Al, 2021. "An empirical analysis on the weak form market efficiency in the Bangladeshi pharmaceutical industry- A case study of Renata Ltd," MPRA Paper 109726, University Library of Munich, Germany.
    13. Imtiaz Mohammad Sifat & Azhar Mohamad, 2019. "Circuit breakers as market stability levers: A survey of research, praxis, and challenges," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 24(3), pages 1130-1169, July.
    14. Masud Pervez & Md. Harun Ur Rashid & Md. Asad Iqbal Chowdhury & Mahbubur Rahaman, 2018. "Predicting the Stock Market Efficiency in Weak Form: A Study on Dhaka Stock Exchange," International Journal of Economics and Financial Issues, Econjournals, vol. 8(5), pages 88-95.
    15. Othieno, Ferdinand & Biekpe, Nicholas, 2019. "Estimating the conditional equity risk premium in African frontier markets," Research in International Business and Finance, Elsevier, vol. 47(C), pages 538-551.

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