A Study on Recent Stock Market Crash in Bangladesh.

Topics: Stock market, Stock, Stock exchange Pages: 14 (4809 words) Published: December 30, 2011
Currently share market is well known to all. It is known that the economic stability and prosperity of a country depend on the condition of her share market. Many brokerage houses are now operating in our country to help investors. When Bangladesh economy looks like a good shape based on capital/share market, that time Trading on the Dhaka Stock Exchange index was halted after it fell by 660 points, or 9.25%, in less than an hour. Chittagong Stock Market also met a similar fate. An abrupt crash of the market sparked violent protests from the Bangladeshi investors. It was the biggest one-day fall in its 55-year history. It is estimated that over three million people - many of them small-scale individual investors - have lost money because of the plunging share prices. The benchmark index had climbed by 80% in 2010 but has lost more than 27% since early December. As a result Investment in the share market is a popular business among the educated middle class of Bangladesh who were left frustrated with the sudden loss to their capital. They were finding ways and means to exit from the market in order to minimize the losses Why this is happen our question is raise, it is not expected for us miracle index up and suddenly down. The experts give their comment that the immediate reason for this crash was the policy of the regulators of the market who laid down a limit for investment by the banks and other financial institutions in the stocks. This was done in order to avoid the market being overvalued. As the banks and other big investor institutions withdrew the capital from the market, the panic ensued.

1. Findings Regarding Possible Reasons for Stock Market Crash. 2. Remedies/Recommendations to Avoid Stock Market Crash in Future.

Findings Regarding Possible Reasons of Stock Market Crash
Bangladesh suffered a big bang crash in stock market last three months which results in many investors’ loss and especially trust of the small investors have drastically reduced from the market. One of the biggest reasons may be is that market got artificial rise last month just to encourage the small and medium investors and as soon as they stuck their money in the market big fishes withdrew their money to a large extent hence causes sudden decline. Crash of Bangladesh market is a big blow to small investors, most of who heavily rely on stock market. Although artificial rise of stock prices is never a good omen for the economy but a sudden fall of market is equally damaging. The authorities in Bangladesh should have thought of the consequences of their decision to set the limits for the banks and other financial institutions to invest in the stocks. I do no doubt the good intention of the authorities but the way it was done and implemented had serious repercussions. They should have done it slowly and gradually. At this point of time it is not clear how much time and effort is required for Bangladesh stock market to recover from this shock.

Having been a passive investor in a small way and watching things from a far, we outlined the following reasons for the market gyration while it was in motion, so it was good to see some of the recent policy responses address some of the points raised below. We believe the following played a major role in contributing to the crash:

Aggressive Investment made by the Investors
Reportedly, aggressive investment made by the investors in the capital market is the main reason behind the share market bubble and said a subsequent plunge in share prices has put pressure on the financial sector with a portion of bank credit being diverted to stock investment from productive sectors.

Overenthusiastic Investors
Unrealistic expectation of investors who for some reason or another seem to think the market would only go up (taking a longer term view -- in decades -- this is probably not completely off the mark when anyone takes into account Bangladesh's growing economy,...

References: Hossain M.(2011), “Recent Stock Market crash and role of Monetary policy”, Bangladesh Institution of Development Studies (BIDS)
Matin T. A (2011), “Money supply and yield seeking behavior”, Brac EPL, stock brokerage limited
Debnath C. N. (2011), “Putting capital market on right track” The Daily Star
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