Literature Review on Bangladesh Stock Market

Topics: Stock market, Capital asset pricing model, Stock Pages: 4 (1197 words) Published: June 11, 2012
Literature Review on Bangladesh Stock Market

Literature Review: 1

Before the decade of eighty much of the stock market literature viewed the present value of dividends to be the principal determinant of market return of stocks. LeRoy and Porter (1981) and Shiller (1981) found that under the assumption of constant discount factor stock prices were too volatile to be consistent with movement in future dividends. The decomposition of stock price movements is very sensitive to what assumption is made about the presence of permanent changes in either real dividend growth or excess stock return (Wohar & Mark, 2006). Cochrane (1992) Timmerman (1995) have argued that fluctuation in stock prices can be explained by time-varying discount rates and future excess returns. Cochrane (1992) by using an alternative methodology to decompose the variability of stock prices also found the variability of excess return to be more important than the variability of dividend growth.

A lower degree of efficiency in less developed countries market might be caused by common characteristics of loose disclosure requirements as well as thinness and discontinuity of trading. It is generally assumed that the emerging markets are less efficient than the developed markets. Raihan, et al (2007) found that in Chittagong Stock Exchange (CSE) in Bangladesh, stock return series do not follow random walk model and the significant autocorrelation co-efficient at different lags do not accept the hypothesis of weak form efficiency. Mobarek and Keasay (2000) also found the same result after conducting research in Dhaka Stock Exchange (DSE) of Bangladesh. Conducting research in Dhaka Stock Exchange (DSE) Rahman, et al (2006) found the negative correlation between the beta and stock return, which is reason for inefficiency of market where the assumptions behind the CAPM model is not supported. Examining empirically the validity of the efficient market hypothesis in African market Alagided and...
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