Risk Analysis of Stock Market

Topics: Stock market, Standard deviation, Arithmetic mean Pages: 8 (2028 words) Published: May 21, 2012
Our assignment topic is “Risk analysis of Stock Market”. To identify the stock market risk we have to do some calculation. In this assignment we choose Coefficient of varience(CV) method We select five banks (Dhaka Bank Ltd., Prime Bank Ltd., Social Islami Bank Ltd., Sahjalal Bank Ltd. and Premium Bank Ltd. ) of financial institution. 1.1 History of the Stock Market of Bangladesh

Dhaka Stock Exchange (Generally known as DSE) is the main stock exchange of Bangladesh. It is located in Motijheel at the heart of the Dhaka city. It was incorporated in 1954. Dhaka stock exchange is the first stock exchange of the country. As of 18 August 2010, the Dhaka Stock Exchange had over 750 listed companies with a combined market capitalization of $50.28 billion. OBJECTIVE OF THE STUDY

2.1 Definition of the Stock Market Risk
Stock market risk is the tendency of stock prices to decrease due to the change in value of the market risk factors. Generally, value of units or shares of a mutual fund that invests in securities is directly related to the market value of those investments held by the mutual fund. The market value of those investments will go up and down depending on the financial performance of the issuers and general economic, political, tax and market conditions. Standard market risk factors are stock prices, interest rates, foreign exchange rates, and commodity prices.

2.2 Definition of Standard Deviation
In statistics and probability theory, standard deviation shows how much variation or "dispersion" exists from the average (mean, or expected value). A low standard deviation indicates that the data points tend to be very close to the mean, whereas high standard deviation indicates that the data points are spread out over a large range of values 2.3 Definition of Coefficient of Varience

The coefficient of variation represents the ratio of the standard deviation to the mean, and it is  a useful statistic for comparing the degree of variation from one data series to another, even if the means are drastically different from each other. 2.4 Advantages of Coefficient of variation

The coefficient of variation is useful because the standard deviation of data must always be understood in the context of the mean of the data. Instead, the actual value of the CV is independent of the unit in which the measurement has been taken, so it is a dimensionless number. For comparison between data sets with different units or widely different means, one should use the coefficient of variation instead of the standard deviation. 2.5 Disadvantages of Coefficient of variation

When the mean value is close to zero, the coefficient of variation will approach infinity and is hence sensitive to small changes in the mean. This is often the case if the values do not originate from a ratio scale. Unlike the standard deviation, it cannot be used directly to construct confidence intervals for the mean.

2.6 Objectives
* To gather information about Bangladesh Stock Market
* To understand the Meaning of stock market risk.
* To understand the meaning of Standard Deviation and CV. * To realize the relation between stock market risk and CV * To find the risky and safe company among selected companies. * To suggest some possible solutions to overcome the risky situation.

2.6 Limitation of the Study
* Time is too much short to do this kind of study properly. * Data are not available.

At first, we select five banks to achieve our objectives. Then we collect date from stock market. The following table shows the stock price of five banks. MONTH| DHAKA BANK| PRIMEBANK| | SHAJALAL BANK| | SIBL| | PREMIER BANK| MAR'11| 41.3(TK)| 41.7(TK)| | 49.7(TK)| | 28.6(TK)| | 36.6(TK)| APR'11| 39.1| 39.3| | 35.1| | 23.2| | 34.3|

MAY'11| 41.4| 40.6| | 36.6| | 22.3| | 32.7|
JUNE'11| 44.7| 47.5| | 38.3|...

References: [1]Gauss, Carl Friedrich (1816). "Bestimmung der Genauigkeit der Beobachtungen". Zeitschrift für Astronomie und verwandt Wissenschaften 1: 187–197.
[2] Walker, Helen (1931). Studies in the History of the Statistical Method. Baltimore, MD: Williams & Wilkins Co. pp. 24–25.
[3]Gurland J and Tripathi RC. 1971. A simple approximation for unbiased estimation of the standard deviation. Amer. Stat. 25:30-32
[4] "What is Standard Deviation". Pristine. Retrieved 2011-10-29.
[9]Is the Bull Market Sustainable? accessed 5, April 2010
[10] Koopmans, L. H.; Owen, D. B.; Rosenblatt, J. I. (1964). "Confidence intervals for the coefficient of variation for the normal and log normal distributions". Biometrika 51: 25. doi:10.1093/biomet/51.1-2.25.
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