final report
TRANSCRIPT
EXECUTIVE SUMMARY
The analysis of securities and make investment decisions fall into two very broad
categories: fundamental analysis and technical analysis. Fundamental analysis involves
analyzing the characteristics of a company in order to estimate its value. Technical
analysis takes a completely different approach; it doesn't care one bit about the "value" of
a company or a commodity. Technicians (sometimes called chartists) are only interested
in the price movements in the market. Despite all the fancy and exotic tools it employs,
technical analysis really just studies supply and demand in a market in an attempt to
determine what direction, or trend, will continue in the future. In other words, technical
analysis attempts to understand the emotions in the market by studying the market itself,
as opposed to its components.
In the process of economic development, stock markets play a pivotal role in channeling
funds from the surplus unit to the productive (deficit) units. Stock markets provide
adequate finance to the entrepreneurs. In recent years with the changing economic
climate, the Government of Bangladesh has emphasized the development of stock
markets in the country. Government is also trying to develop the stock markets through
different policy measures, even though the rate of development is not up to expectation.
Thus, the situation warrants detailed examination of the stock markets of Bangladesh and
drawback in the system need to be point out. In this paper we tried to analyze the
development and growth of stock exchanges and Securities and Exchange Commission
(SEC) of Bangladesh. For evaluating the stock market performance data has been
analyzed through the various statistical measures like growth percentage, average growth,
trend equations, square of correlation coefficient & correlation matrix for Dhaka Stock
Exchange (DSE) & Chittagang Stock Exchange (CSE). The paper also briefly describes
some of the problems of Bangladesh stock market such as, inactive stockbrokers, non-
existence of market makers, kerb trading, malpractice’s of companies, non-transparency
of the deals, and poor performance of Securities and Exchange Commission (SEC) etc. In
order to overcome the problems a few suggestions are given in this paper for stable the
stock market.
INTRODUCTION
A capital market will play as a strong catalyst in the industrialization and economic
development of the country.The Dhaka Stock Exchange (DSE) is a new and emerging
stock exchange located in the capital city of Bangladesh. The Dhaka Stock Exchange has
also undergone significant changes contributing towards the development of Bangladesh
capital market. Theoretical and empirical literature has shown that the prices of shares
and other assets are an important part of the dynamics of economic activity of the
country. The development of the capital market is crucial for capital accumulation,
efficient allocation of recourses and promotion of economic growth. The capital market
acts as an intermediary between surplus units and deficit units of an economy and
facilitates savings into investments. In addition, by ensuring liquidity for the invested
funds, the capital market ensures optimum allocation of resources. Bangladesh being a
developing nation in South Asia and characterized by underinvestment and poor
infrastructure development needs presence of organized and well–functioning financial
markets that would facilitate investment in efficient and profitable ventures and promote
economic advancement. The Bangladesh’s Dhaka Stock Exchange market has witnessed
a radical transformation in the last decade. The adoption of international quality trading
and settlement mechanisms and reduction of transaction costs have made the investors,
both in domestic and foreign, more optimistic which in turn evidenced a considerable
growth in market volume and liquidity. The market feature a developed regulatory
framework, a modern market infrastructure, removal of barriers to the international
equity investment, better allocation and mobilization of domestic resources and increased
market transparency. These reforms set the stage for significant market expansion, with a
trend development in size and liquidity. New equity issues, volume and value of trading
and the number of traded companies all recorded significant progress. As a result, market
capitalization increased from 1.3764 percent to 16.2849 percent of GDP during 1990-
2009 and the turnover ratio increased from 1.6843 percent to 54.2524 percent. All these
infer better efficiency of Bangladesh’s Dhaka Stock exchange market. Despite this
transformation Dhaka Stock Exchange market (DSE) has been shown greater volatility
which has affected the informational efficiency of DSE. The Dhaka stock market has
been experiencing volatility since its inception-the indices reached the highest level in its
history in November 1996 and eventually crashed; afterwards investors lost their
confidence about the stock market. As a result, regulators reformed the market and
introduced automation transaction in 1998 and this was expected to conduct studies on
informational efficiency, particularly to investigate any improvement as a result of the
automated trading system in the market. Thus both companies and investors want capital
markets to assign fair prices to the securities being traded. In the language of corporate
finance, companies and investors want the capital markets to be efficient. Whether capital
markets are in fact efficient is a question which has been studied extensively for many
years. One school of thought believes that the financial markets are efficient. Another
school of thought believes that the financial markets are not efficient. Even within the
believers of market efficiency, three forms of efficient market hypothesis are developed.
A market is weak form efficient if the current stock prices or return series are not
predictable from past prices or return information (Fama 1991) and hence follow a
random walk. The market is semi-strong form efficient if the current security prices
reflect all publicly available information. Finally, the market is strong form efficient if
security prices reflect all private and public information. The traditional analysts strongly
believe that the stock markets are efficient because stock prices reflect the true market
value of future dividends. Thus the shareholders make decisions on which shares to add
or remove from their portfolios. The investors such as commercial banks and other
financial institutions make decisions about whether and at what price to offer finance to
companies. Financial managers make decisions in the major areas of investment,
financing and dividends. Shareholders, investors and financial managers can inform their
decisions by evaluating the financial performance of companies using information from
financial statements, financial database, the financial press, and from Internet. Ratio
analysis of financial statements can provide useful historical information on the
profitability, solvency, efficiency, and risk of individual companies. By using
performance measures such as economic profit, earning per share, net asset value per
share, and value added, company performance linked more closely with shareholders
value and shareholders wealth and attention can be directed to ways in which companies
can create more value for shareholders. But in recent years many market analysts have
started arguing for market inefficiency, at least in its weak form. They claim that the
traders are now paying more attention to information related to recent trends in return
instead of putting emphasis on the information related to future dividends. A large
number of traders are buying stocks only because past returns were very high. These
traders are often called feedback traders; believe that if the stock returns were in high in
the recent past, they are likely to be high in future. Such behaviors of traders cause stock
prices to go beyond the true values of stocks in the short run. This feedback trading
makes the market more volatile in the short-run because in the long-run the stock prices
tend to return to their true values.
BRIEF HISTORY OF STOCK MARKET IN BANGLADESH
The stock market history of Bangladesh refers back to 28 April, 1954 when the East
Pakistan Stock Exchange Association Ltd. was established. Formal trading began on the
bourse in 1956. The trading was suspended during the liberation war of Bangladesh in
1971. Operation resumed again in the 1976 with the change in government policy.
During 1976, there were only 9 listed companies with total paid up capital of Tk.0 .138
billion and market capitalization of Tk. 0 .147 billion which was 0.138 % of GDP (Khan,
1992). Since then the stock exchange continued its journey of growth. The second stock
exchange of the country, the Chittagong Stock Exchange(CSE) was established in
December 1995.In order to control operation of the stock exchanges and trading of stocks
of listed companies, the government of Bangladesh established the Securities and
Exchange Commission of Bangladesh on 8th June, 1993 under the Securities and
Exchange Commission Act, 1993 .The mission of the SEC is to protect the interests of
securities investors, develop and maintain fair, transparent and efficient securities
markets, ensure proper issuance of securities and compliance with securities laws.
From the inception the stock market of the country was growing in a slow pace. There
was a large surge in the stock market in the summer and fall of 1996 evidenced by a
197.43%, 372.30% and 370.51% increase in the market capitalization, total annual
turnover and daily average turnover respectively in DSE and 506.63%, 210.2% and
615.15% increase in the market capitalization, total annual turnover and daily average
turnover in CSE. DSE general index grew from 832 in January 1 1996 to 3567 in
November 14, 1996 while that of CSE grew from 409.4 in 1995 to 1157.9 in 1996. The
market, however, crashed in December of 1996 and the index started to decline
significantly since then with the index assuming a value of 507.33 as of November of
1999, a cumulative decline of 83.44% from 1996 to 1999 with the annual rate of 27.82%,
and has yet to fully recover. Investors’ confidence was significantly damaged because of
excessive speculations, allegedly aggravated by widespread irregular activities. The
government of Bangladesh undertook the Capital Market Development Program
(CMDP) supported by the ADB on 20 November 1997. The CMDP aimed at (i)
strengthening market regulation and supervision, (ii) developing the stock market
infrastructure, (iii) modernizing stock market support facilities, (iv) increasing the limited
supply of securities in the market, (v) developing institutional sources of demand for
securities in the market, and (vi) improving policy coordination. The policy matrix of the
CMDP included 95 program measures. Central Depository Bangladesh Limited (CDBL)
was incorporated as a public limited company on 20th August 2000 to operate and
maintain the Central Depository System (CDS) of Electronic Book Entry, recording and
maintaining securities accounts and registering transfer of securities; changing the
ownership without any physical movement or endorsement of certificates and execution
of transfer instruments, as well as various other investor services including providing a
platform for the secondary market trading of Treasury Bills and Government Bonds
issued by the Bangladesh Bank. CDBL went live with the Electronic Treasury Bills
registry of Bangladesh Bank on 20th October, 2003 and thereafter started equity market
operations on 24th January, 2004. It was set up to facilitate the computerized delivery and
settlement of securities and eliminate to the extent possible, the paper work involved in
handling the transactions and that would ensure risk-free and cost-effective settlement.
Before establishment of CDBL, the delivery, settlement and transfer procedures were
handled manually and were plagued by lengthy delays, risks of damage, loss, forgeries,
duplication and considerable investment in time and capital. Besides, both the CSE (July
1998) and the DSE (August 1998) have automatic trading services. By having automated
trading system and a central depository in place, the credibility of the country's Stock
Exchanges in the eyes of the prospective foreign investors are expected to grow stronger
and boost investment activities in the country's stock markets. Contrastingly, foreign
portfolio investment, never more than $200 million, has virtually disappeared form the
stock market of Bangladesh.
PROBLEM STATEMENT
Stock markets are great financial institutions for economic growth provided they are
managed properly. Billions of dollars worth of capital can be raised from millions of
investors, small and large with voluntary participation. From stock market investors
can earn lots of money as well as lose lots of money. Artificially market
can move this way or that way. It is not difficult for the big investors or
the regularity authority to make market up word or down word. Legally
or ethically it is wrong but in Bangladesh it is very familiar scenario.
In Bangladesh there are many factors that are responsible for babul and crash of share
market. These reasons are market regulatory authority manipulators, childish behavior on
institutional investors, intervention of central bank, share split circuit breaker theory etc.
all this reasons are created intentionally or because of the mistake made by the regulatory
authority. Whatever because this activity, currently we have a volatile stock market.
PURPOSE OF THE STUDY
Purpose of the study is to explore, gather knowledge about certain legal and ethical issues
and to provide solutions concerning the activities of recent ups and downs of share
market in Bangladesh.
LITERATURE REVIEW
The Bangladesh capital market continued to rally handsomely in 2010 even though U.S
and European market had to recover from recession effect. The market capitalization to
GDP ratio has been increased over the year from 30% to 50%. DSE General Index
(DGEN) has gained its peak at 8,918.51 point in December 5, 2010 and the lowest value
was at 4,568.40 point.
Over the year, DGEN increased 82.78% and reached at 8,290.41 point at the end of the
year. The total market capitalization of all shares and debentures (excluding t-bills and t-
bonds) of the listed securities at the end of December, 2010 also stood higher at USD
49.4 billion, indicating a gain of 84 percent which was higher than USD 26.8 billion at
the end of December, 2009. The total turnover has increased from USD 0.13 billion to
USD .25 billion which indicates a 91% growth. Along with other factors, at least a
portion of the upward movement of the market can be explained by the inadequate
number of securities and huge fund flow in the capital market. The market was not able to
uphold its bullish position from the beginning of December, 2010.
During this time institutional investors had the tendency to realize profit from the market
and it was expected that the market would remain flat in this time. However, the actual
steep downward trend was not expected. One of the primary reasons for this abnormality
could be the Bangladesh Bank’s decision regarding CRR (Cash Reserve Ratio) and SLR
(Statutory Liquidity Ratio) in the hope of curbing the inflationary pressure. Following the
actions, call money rate has soared significantly and it rose as high as 180%, breaking the
earlier record of 150% hit on March 30, 2006. From June to November, 2010 excessive
liquidity decreased by 28% (see the table below).
Name of Stock Index Fig as on Dec 30, 09 Figure as on Dec 30, 10 Percentage (%) change
BSE Sensex 17464.8 20509.1 17Karachi 100 9386.9 12022.5 28
DJ CBN China 600 29052.8 26701.3 -8Bangldesh DSE general 4535.5 8290.4 83
S&P 500 1115.1 1257.6 13Heng Seng 21872.5 23035.5 5
REASON BEHIND THE OVERVALUED STOCK PRICE
Lack of Investment Opportunity
If we look, our power sector falls deeply in the year of 2009 & 2010. Lack of supply of gas, electricity
shortage entails some investors to look behind from the real sector. In these two years the investment
progress in industrial sector was seen very slowly for this reason. Again, due to shortage supply of
power, the production was not up to the mark from the investor’s point of view. So lots of investors
invest their money to stock market rather than industrial sector. In this way lots of money injected in
the market but supply of share was increase so stock price rise.
Whitening the black money
It was started in the year 2007. At that time caretaker government allows the black money holder’s to
invest their money into stock market without any charged. This rule is sustained in 2009 as well as
2010.Certainly a huge amount of black money is injected into the stock market in different period of
time and we know that if the demand is more than supply price will rice.
Lack of supply of new shares:
It is to be noted that the stock market will run smoothly and efficiently, when the number of shares are
matched with number of money injected into the system. Most of the experts as well as analyst alarm
DSE, SEC and the government about the need of supply of new shares into Bangladesh capital
market. In 2010 only 13 securities are added into stock market. Among them, 8 mutual fund, 1bond
and 4 different companies are enlisted. These numbers are very short against the demand of the share.
Establishment of New Brokerage House & Merchant Bank’s branch:
In the year 2010 there are huge number of brokerage house established in country’s various areas.
SEC is reluctant to give nod to brokerage firm to establish more branches around the country. As the
number of scripts remain very small in respect with money injected in stock market. Around 200
branches was opened in the year 2010, So more people were interested in stock market as the price of
the most of the stock were rising over the period of time. But in this frame, the expected number of
shares could not be higher. So, as a result the stock was getting higher price.
Lack of Surveillance of Bangladesh Bank:
According to Bank Company Act, No commercial bank in Bangladesh can invest more than 10% of its
total liability. In the beginning of 2010, Bangladesh Bank was alarming some banks to control their
heavy investment in stock market but not strictly conveyed. As a result, banks including leasing
companies and merchant banks, seeing negligence of Bangladesh Banks role, investing huge bulk of
money into stock market. At that very beginning Bangladesh Bank was reluctant to rules.
Share split:
In April SEC asked all the companies, who have a face value of 100 tk per share to convert in 10tk
share. Now companies having 100tk face value started to declare the changing its face value. In this
declaration it was found that the stock price of the respective company is jumped to 30 to 40% higher
than previous price. Through the fundamental of the company itself remains unchanged. It is
psychological effect upon the investors that changing face value can increase stock price to same
extent.
Manipulators Involvement:
Most of the experts and analysts said that manipulators are involved in every stock market. They play
a big role to increase the price of stock. Manipulators or gambler basically en---- with low paid up
capital, which is considered as small companies. They keep buying the shares until there are not
sufficient buyers to sell those shares. Sometimes they brought the share price 2-times within a few
days. It is observed many counties worldwide. In case of Bangladesh market it was observed that there
remains huge number of manipulators. These manipulators are found as big businessman. We can see
some of these stock price were getting 15 times more than it was before one year. It could happen if
there involved in strong manipulators. Sometimes in case of big paid up capital share increasing price,
they joint or collaborate with big merchant banks commercial banks and leasing companies they
decide together that which big companies price share to be increased at what percentage or what price
level. According to their plan, they created some rumors, which is injected by their nominee people in
brokerage firms. Sometimes if planned failed, these manipulators manage the high officials of SEC
former high officials of different banks and financial institutions, proprietors of some brokerage house
and their selected nominees are considered as manipulators. It was said that there remains 10-15 such
groups who control the whole market.
Fraudulent in showing Company Fundamental:
Company fundamental is the 1st criteria which upon an investor primarily look before investing in the
particular stock. Fundamentals means: Companies earning per share (EPS), last 5 years dividend,
projected future dividend, net operating each flow per share, price earning ratio, net asset value per
share etc. sometimes the insider high officials of the company manipulate the figure of those variable
in such a way that can impact on the stock market. Some of the companies like CMC Kamal, Mithun
Knitting. ACI Formulation manipulated or changed the figure of the fundamentals which were not in
consistent with pervious records. They showed 5-10 times move earning within three months, which
represent absolute fraudulent. By this means, a particular stock price can certainly be increased.
Face books Role:
The social site Facebook had also played a role to hike in the stock price. Some investors open an
account in Facebook. They form a group in the name of Bangladesh share market. In this site they post
very lucrative items to purchase and leaks price sensitive information. Sometimes it prove true but the
most of the time, it leads the general investors to mislead.
Our share market experienced a totally new kind of development in the trading. It
watched both sides of a coin within two trading days. On January 10, 2011 we saw a huge
selling pressure and a record fall, 600 points in the general index of Dhaka Stock
Exchange (DSE) within just 50 minutes of trading. Again in the next day we found the
other side of the coin when almost no seller was founding case of most of the shares. At
the end of the day’s trading the DGEN, actually, gained 1012 points taking into
consideration the previous day’s loss. Thus we witnessed both gain and record decline in
index on January 10 and January 11 respectively. It appeared like a circus said a market
analyst. The DGEN which was 5367.11 points on January 10, 2010, increased 6249.35 on
the same date this year. But in a day’s gap market index soared to 7512.09. The
percentage change in one year stood at 39.9 from 16.40 within 2 consecutive trading
days.
In 2010, institutional sector some banks and non-bank financial institutions showed their
investments characteristics like general investors. Over last 2 years, the profit of most of
the banks and financial institutions became two to three times more than that of the
previous years. The profit growth was attributed to profit earned from investments in
shares. Thus many banks and institutions concentrated on share business instead of
investing in their core banking activities.
In early December 2010 when general index reached the record 8918.5 points, many
analysts expressed their concern about the overvaluation and syndicated price hike. But
that time our general investors were over inspired by the gain from the market. It was
seen that most regularity decisions failed to slow down the unending market rally.
Investing people became more dependent on rumors than fundamentals of the issues
traded on the bursts. Insider traders turned out to be big gainers. Now it is becoming clear
to us that there were many other factors that have brought the capital market on the verge
of a collapse. Many of us started blaming the regulators. It is a matter of great regret that
the SE, the central bank and other shareholders are also blaming each other. This
ultimately proves the lack of coordination among them in policy-making and policy
implement.
REASONS FOR COLLAPSE
Intervention of central bank
In December the central bank raised the percentage of money commercial banks must
hold in reserve in an effort to curb local lenders' exposure to the market and rein in
inflation. Experts say this move played a key role in the crash, prompting a mass stock
sell-off by banks as they sought to raise cash. (Salauddin Ahmed Khan)
Circuit Breaker theory
The introduction of a so-called "circuit breaker" to automatically halt trading if the
market rises or falls more than 225 points was also an ill-advised. It creates panic (among
retail investors). The government has to get rid of it.
Rumor
In Bangladesh most of the investor does not study the market. They depend on others and
believe them from the bottom of their heart because they think others are more
experience. They do not have faith on themselves. There is a phrase that “if you ran
without knowing where to go you will fall badly “same thing happened with the
investors.
Childish behavior of institutional investor
Institutional investors are behaving like retail investors. They invest for a short period of
time and sell the securities in the market. This behavior is one of the main reasons for the
collapse of share market in Bangladesh. Initially ICB, Agrany bank, IDLC Finance,
Lanka-Bangla Finance invest in a institutional attitude. When AB Bank entered into the
market all the financial institution /Merchant Bank do not maintain the discretionary
account rather provide lone to the non-discretionary account and buy and sell share
according to the client which creates a great impact in the share market. (Asset
Management Company’s meeting)
Manipulation of investors
In each stock market there are some investors who are very big. They can easily make the
price of stock higher or lower. They are known as gambler. In case of Bangladesh market
it was observed that there remains huge number of manipulators. These manipulators are
found as big businessman. At first they raise the price through bulk transactionl, we can
see some of this stock price were getting 15 times more than it was before one year. It
could happen if there involved in strong manipulators. Sometimes in case of big paid up
capital share increasing price, they joint or collaborate with big merchant banks
commercial banks and leasing companies they decide together that which big companies
price share to be increased at what percentage or what price level. According to their
plan, they created some rumors, which are injected by their nominee people in brokerage
firms. In this way they raise the price and attract the people and after that when they have
made a good amount they sell their share to the market. When they release their share to
the market sell quantity becomes more then buy quantity witch cause down word
movement of stock price.
IMF issue
The International Monetary Fund's prescription to Bangladesh Bank for addressing the
overexposure of commercial banks to the stock market also propelled the unprecedented
fall. The SEC's excessive initiatives to cool the market in a short time are also blamed for
the crash.
Artificial Rise
One of the biggest reason may be is that market got artificial rise last month just to
encourage the 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.
The Bubbles Burst
Should the central bank play some role in bursting asset bubbles? This is a contentious
issue that has been discussed for a long time. Some argue in favor of the view that central
banks should burst bubbles. But, in their view, monetary policy should respond to asset
bubbles in a cautious and moderate manner in order to avoid economic distortions. Some
others argue against the role of central bank in bursting bubbles. They say that bubbles
generally arise out of some combination of irrational exuberance, jumps forward in
technology and financial deregulation, for which the connection between monetary
conditions and the rise of bubbles is tenuous.
Investment Withdraw
The analysts have opined 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.
Control the Liquidity
Market insiders blamed the recent fall on the central bank's measures to control the
liquidity flow in the banking system. In an effort to contain inflation, the central bank
recently increased the Cash Reserve Ratio (CRR) for banks by 50 basis points to 6 per
cent. It was also aimed at stopping credit-flow to non-productive sectors.
Forced Sale
The demands also include immediate halt to ‘forced sale or trigger sale and reasonable
rates of bank interest. The central bank also issued another directive asking financial
institutions to adjust their stock investment exposure that month. From January, no
institution will be allowed to invest more than 10 per cent of its total liabilities in the
stock market, and the exposure will be calculated based on market price, not cost price.
Corruption by the regularity authority
According to the law a person who is engaged in the SEC, DSE or CSE or their spouse
do not have the authority to made transaction to the stock market but reality is little bit
different. Lots of SEC’s employees spouse are engaged in stock market and made heavy
transaction with more than one account. These people have played a vital role for the
collapse of stock market in 2010-2011. After December 5 they sell stocks heavily which a
big reasons for the collapse.
RESEARCH QUESTIONS
This study proposes to examine the following research questions:
1. Is there any significant relationship between share split and over price?
2. Is there any significant relationship between manipulation and over price?
3. Is there any significant relationship between role of face book and stock over
price?
4. Is there any significant relationship between whitening the black money and stock
over price?
5. Is there any significant relationship between intervention of Bangladesh Bank and
crash of share market?
6. Is there any significant relationship between Corruption by the regularity
authority and crash of share market?
7. Is there any significant relationship between Childish behavior of institutional
investor and crash of share market?
8. Is there any significant relationship between manipulation of investors and crash
of stock market?
HYPOTHESES
The hypotheses resulting from the research questions are:
1. There is a significant relationship between share split and over price
2. There is a significant relationship between manipulation and over price.
3. There is a significant relationship between role of face book and stock over price
4. There is a significant relationship between whitening the black money and stock
over price.
5. There is a significant relationship between Corruption by the regularity authority
and crash of share market
6. There is a significant relationship between intervention of Bangladesh Bank and
crash of share market.
7. There is a significant relationship between Childish behavior of institutional
investor and crash of share market.
8. There is a significant relationship between manipulation of
investors and crash of stock market.
RESEARCH METHODOLOGY
Research Design
With the above findings in the literature, this study aims to inspect the possible reasons
for the overvalued and collapse of stock price in Bangladesh stock market. The projected
framework (Figure1) represented the outline and arrangement of relationships among the
set of considered variables. The purpose of the study was to measure correlations among
variables.
Thus, this study aims to inspect the possible reasons for the overvalued and collapse of
stock price in Bangladesh stock market. Here, Lack of Investment Opportunity,
Whitening the black money, Lack of supply of new shares, Establishment of New
Brokerage House & Merchant Bank’s branch, Lack of Surveillance of Bangladesh Bank,
Share split, Manipulators Involvement, Fraudulent in showing Company Fundamental,
Face books Role, Intervention of central bank, Circuit Breaker theory, Rumor, Childish
behavior of institutional investor being are considered as the independent variables and
over price of stock and collapse of market is being considered as dependent variable.
Sampling Method
The data used in this research consists of questionnaire responses from participants who
are involved in stock market in Dhaka city. The population would be all the people who
are engaged in share market in our country. The study particularly targets the
knowledgeable personnel of stock market. So, samples will be taken only from these
personnel of stock market. Our sampling technique will be simple random sampling
under the probability sampling method. Cooper and Schindler (2003) stated that in this
type of probability sampling method each population element is known and has an equal
chance of selection. And our sample size will be 150. The study will be conducted only
in Dhaka city due to time and budget constraints.
Survey Instrument
Questionnaires are the cornerstone for market research and the success of the questions
will be determined by the quality and arrangement of the questionnaire itself. Without
hesitation, questionnaires will permit us to gather information that cannot be found
elsewhere from any secondary information such as books, newspapers and internet
resources. This is because the information we obtain will be fresh and unique.
The questionnaire survey is the most successful method for this study to collect the data
because conducting personal interview to such a large sample of personnel would have
been both time consuming and expensive. A structured questionnaire will be used in this
study to collect data from the experts of share market. So, we can easily utilize the
gathered data for quantitative analysis.
Data Collection
Both primary and secondary data have been used in this study. First, primary data have
been collected from interview. In order to gather information, in depth interview
technique has been applied Mr. Shamimuzzaman one of the owner of ACE brokerage
farm.
Secondary data sources include Bangladesh Bank, including various reports and
publications of SEC, Chittagong Stock Exchange (CSE) and Dhaka Stock Exchange
(DSE). The researchers have tried to use data sets spanning recent times with some
exceptions depending on availability.
This study is mostly qualitative in nature. After data collection, necessary screening has
been performed before tabulation and graphical presentation. The concerns expressed by
the issuers and the investors, and the reactions of the regulators have been analyzed.
Finally, based on the findings and analyses, policy recommendations have been made.
Data Analysis
Our planned study was a co relational study. Correlation is a technique for investigating
the relationship between two quantitative variables and Pearson's correlation coefficient
(r) is a measure of the strength of the association between the two variables. So here, to
investigate data, Pearson’s Correlation analysis will be used to find out whether any
connection exists between the independent and dependent variables. The acquired data
will be analyzed through Statistical Package for Social Science (SPSS) software
version11.5.
Research Timeline
2011 June Research Proposal
Writing
2011 June Literature Review
2011 June Data collection
procedure
LIMITATION OF THE STUDY
It will be quite impossible for us to prepare a report without limitations.
Lacking of information will be a big factor. We will conduct the proposal
during our ongoing course, thus we will face serious time constrains
and money constrains. So the lacking of information for comparison,
lack of time & monetary problem will be the major limitations of this
research work. Lastly, there are many other factors which can be a
cause of babul and crash of stock market.
SIGNIFICANCE OF THE STUDY
This research has a number of implications on Bubbles and collapse of
Bangladesh stock Market. The unexpected rise and fall in share prices
mostly followed from the general confidence of the investors about
political stability, euphoria of investment in shares, prospect of quick
capital gains, a vacuum in respect of institutional presence in the share
market, monopolistic dominance of member brokers, inefficiency of the
SEC to cape with the developments, existence to kerb market, absence
of proper application of circuit breaker. The stock market is not free
from the problems, so the significances of the study are:
Price manipulation-It has been observed that the share values of some
profitable companies have been increased fictitiously some times that
hampers the smooth operation of stock market.
Delays in settlement: Financing procedures and delivery of securities
sometimes take an unusual long time for which the money is blocked
for nothing.
Irregulation in dividend: Some companies do not hold Annual General
Meeting {AGM} and eventually declared dividends that confused the
shareholders about the financial position of the company.
Selection of Membership: Some members being the directors of listed
companies of DES look for their own interest using the internal
information of share market.
Improper Financial Statement: Many companies of DSE and CSE do not
focus real position of the company as some audit firms involve in
corruption while preparing financial statements. As a result
shareholders as well as investors do not have any idea about position
of that company.
RECOMMENDATION
Some of the recommendations are given from our report analysis:
The government should relax IPO rules that is a company with at least Tk 25
crore in paid-up capital, including the IPO offer size, should be allowed for listing
on the exchanges in where the existing IPO (initial public offering) rules allow a
company having minimum Tk 40 crore in paid-up capital, including the IPO offer
size, to be listed on the exchanges. Many companies are interested to come to the
market, but cannot due to the IPO conditions. If the rules are relaxed, they will be
able to bring more new companies to the market that is now facing a dearth of
fresh securities.
The government in the proposed budget has doubled tax on brokerage
commission that may hurt the stockbrokers. Presently, the tax deductible at source
for brokerage commission of the stockbrokers is 0.05 percent, which has been
proposed to 0.10 percent. But the government could have increased the tax to
0.06-0.07 percent, with the trading volume on a continuous downslide following
the recent market catastrophe; it is not the right time to double the tax on
brokerage commission.
Government should make SEC accountable, transparent to restore the past glory
of the regulatory body through proper implementation of regulations on the basis
of morality. So the recommendation is that on restructuring the regulatory
framework could be formulated for ensuring a realistic, effective and stable
capital market so that both supply side and demand side constraints could be
addressed effectively.
According to the stock market scam probe report government should obviously
take actions against the culprits of the share market debacle.
Government should provide educational programs like various training session for
the small investors to increase their analytical ability before investing on share
market. Because small investors are the gin pig when the market crushes. To
avoid this they should participate the monthly awareness program which is
conducted by DSE. Experts stress that amateur investors need to be wiser and
tougher .SEC has also liability to arrange seminar and road show in different
branches of merchant banks and brokerage houses. SEC should initiate awareness,
educational and promotional programs through institutional training for a vibrant
market with active presence of issuers and investors.
Demutualization of a stock exchange transforms it from an entity owned by
mostly brokerage-owning members into a for-profit company owned by
shareholders. It ensures a sound corporate governance, alternative business
models and operational efficiency. A demutualized exchange can also freely trade
on the market like any other public company. Demutualization is a must to
increase transparency in the bourses functions.
It is obvious that all the stack holders, commercial banks, mutual funds, merchant
banks and mostly the retail investors who made up this capital market. Policy
coordination across finance ministry, central bank, SEC and parliamentary
standing committee is essential for the capital markets and the health of the
financial system It is the duty to government to make proper co-ordination among
these market players. The decision of Bangladesh Bank should not contradictory
to the investor’s part. Commercial banks should act more responsible to stabilize
the capital market with the help of Bangladesh Bank. These entire players should
act responsible behavior in proper guideline.
CONCLUSION
Current unsettled market environment is certainly not conducive for market development
and for small investors. All indicators are pointing to the conclusion that the stock prices
are generally over valued and a market correction to bring prices in line with economic
fundamentals of the companies would be desirable for future market development. When
foreign and domestic institutional investors are pulling out of the market and holding
large cash reserves for future investments, it is not the time for new and uninformed
investors to join the market.
The investment guru Warren Buffet has rightly characterized stock market frenzy in the
following manner in 2000: "The line separating investment and speculation is never
bright and clear ... becomes blurred still further when most market participants have
recently enjoyed triumphs. Nothing sedates rationality like large doses of effortless
money." It is thus imperative on the part of policy-makers to send clear warning signals
highlighting the heightened risks in order to protect ordinary investors.
Today's stock market is not as immature as it was in 1996. Nevertheless, when we see
small investors erecting road blocks and burning tires whenever stock prices come down
marginally, we have to believe that this market is being driven by mob frenzy.
When the great scientist Sir Isaac Newton lost a bundle with the bursting of the South Sea
Bubble, he observed that: "I can calculate the movements of stars, but not the madness of
men." If the madness in Bangladesh stock market continues for a few more months, the
bubble would become much bigger and it would explode like it did in 1996. We may still
have time, but the policy-makers would have to act now and in a concerted manner.