Return Behavior of the DSE-20: An Empirical Investigation on the Dhaka Stock Exchange

Abstract

This paper investigates the behavior of DSE-20 using daily DSE-20 Index and prices of the DSE-20 securities for the period of 2001-2003. A number of studies conducted on return behavior but most of them are on the developed markets and none of them on the Dhaka Stock Exchange. Hence, the existing evidence has limited relevance in identifying the return behavior of DSE-20. For the empirical analysis of this study, ARMA, ARIMA, ACF, PACF, and Dimson's Market model have been conducted. The ACF and PACF suggest that the DSE-20 return series is a stationary time series. The empirical results also suggest that AR (1) coefficient is not significant and all the evidence is against the weak-form market efficiency and proves that the past price series can be used to predict the future returns. However, the results of the ARIMA imply that the return series are following stationarity. The empirical evidence is consistent with Harvey (1993) and Bekaert (1993), i.e., significant predictability in rates of return. As this study is particularly concentrated on an emerging market, it will help the professionals in further understanding of financial issues in the emerging markets and particularly markets in the Asian region.

Keywords: Return Behavior, Efficient Market Hypothesis.

JEL Classification: G14, G15