Efficient Market Hypothesis

Topics: Stock market, Stock exchange, Stock Pages: 8 (2123 words) Published: August 23, 2013
Introduction

Objectives

Capital market, being an essential element of today’s economy, demands an intensive and special attention. The objective of this study is to look into every aspect of Bangla-desh capital market and identify its various pros and cons along with efficient market hypothesis.

The specific objectives of this study are:

To give an overall idea about the capital market-its structures, functions, importance, etc.

To compare the relative conditions of Bangladesh capital market effeciency.

Methodology

Secondary data and information were used in preparing this seminar paper, and these were collected through teamwork by adopting the following processes:

* Visiting the website of followings:

Dhaka Stock Exchange (DSE)

Dhaka Chamber of Commerce (DCC) Bangladesh Bank (BB)

Monetary Policy Department (MPD), BB

* Consulting books from different libraries of:

Bangladesh Institute of Development Studies (BIDS) Dhaka Chamber of Commerce (DCC)

Bangladesh Bank (BB) Other Books

Limitations of the study

The vast majority of efficient market research to date has focused on the major United States and European securities market. Far fewer have investigated the developing and less developed countries markets; and no study on this area has been performed on the Dhaka Stock Exchange (DSE). The study seeks evidence supporting the existence of at least weak-form efficiency of the market.:

There was a little scope for research on this crucial subject as all the data was secondary and no way to collect primary data was available.

Lack of a wide coverage due to time constraint. We did not have much time to visit all the relevant places and meet respective personnel.

Only secondary data was used, but there is no alternative of primary data to en-sure the accuracy and effectiveness of the study.

CAPITAL MARKET IN BANGLADESH

Definition

Capital market can be termed as the engine of raising capital, which accelerates industrialization and the process of privatization. In other words, capital market means the share and stock markets of the country. It is a market for long term fund. With the emergence of the need for infrastructural development projects, for setting up of new industries for entrepreneurial attempts-now there are more frequent needs of funds.

Participants in the capital markets are many. They include the commercial banks, sav-ing and loan associations, credit unions, mutual saving banks, finance houses, finance companies, merchant bankers, discount houses, venture capital companies, leasing companies, investment banks & companies, investment clubs, pension funds, stock ex-changes, security companies, underwriters, portfolio-managers, and insurance compa-nies.

Functions

The functioning of an efficient capital market may ensure smooth floatation of funds from the savers to the investors. When banking system cannot meet up the total need for funds to the market economy, capital market stands up to supplement. To put it in a single sentence, we can therefore say that the increased need for funds in the business sector has created an immense need for an effective and efficient capital market. It faci-litates an efficient transfer of resources from savers to investors and becomes conduits for channeling investment funds from investors to borrowers. The capital market is required to meet at least two basic requirements: (a) it should support industrialization through savings mobilization, investment fund allocation and maturity transformation and (b) it must be safe and efficient in discharging the aforesaid function. It has two segments, namely, securities segments and non-securities segments.

Importance of Capital Market in the economy

The capital market is the market for long-term loans and equity capital. Developing countries in fact, view capital market as the engine for future growth through mobiliz-ing of surplus...
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