Stylized Facts of the Statistical Properties of Risk and Return of the Dhaka Stock Exchange: 1990-2015
The economy of Bangladesh is likely to experience greater share of equity capital as it moves along its higher growth trajectory. But the understanding of the capital market of Bangladesh and its potential is very low. The role of the security market is mostly absent in the development discourse of Bangladesh and has not received due attention in policy domain largely because there is hardly any robust analysis on it. The current literature is mostly outdated and fails to ask the most fundamental first order questions such as what is the rate of return of the capital market? What is the extent of equity premium? What is the extent of trade-off between return and risk? Therefore, constructing a set of stylized facts of the capital market of Bangladesh with regard to return and risk (volatility) is essential for providing feedbacks into the broader discussion on the nexus between method of finance and economic growth in Bangladesh. Besides, having a general understanding of the stylized facts of the return and risk of the market is also important for the small investors who are susceptible to market manipulation. This study will investigate the risk-return relationship for DSE index as well as for sectoral indices using daily stock market data for all listed securities from Dhaka Stock Exchange for the period 1990-2015. For the estimation purpose we will use a very popular model from the GARCH (Generalized Autoregressive Conditional Heteroscedasticity) family, namely the GARCH-in-mean model.
Siban Shahana, Dr. Kazi Iqbal and Md. Iqbal Hossain