Title : “On Risk-Return Relationship: An Application of GARCH (p, q)-M Model to Bangladesh Stock Market Using Monthly Price Index Data”

Authors : Md. Sharif Hossain, Md. Gazi Salah Uddin, and Rabita Sabah

Abstract : This study empirically examines the risk-return relationship and the impact of some institutional factors such as lock-in, circuit breaker and the caretaker government on volatility for Bangladesh stock market namely Dhaka Stock Exchange (DSE) using the GARCH(p, q) –M model. The GARCH (p, q)-M models are estimated using the monthly price index data for three indices of DSE namely all shares price index (DSI), DSE general index (DSEG) and DSE-20 index (DS20). The monthly stock returns of DSE show positive skewness, excess kurtosis and deviate from normality. The returns display the significant serial correlation suggesting the stock market inefficient and also the ADF and PP tests results strongly reject the null hypothesis of nonstationarity indicate that the DSE does not follow the hypothesis of weak-form of efficiency. From the estimated results of GARCH(1,1)-M model, it has been found that there is a positive risk-return relationship in DSE but not statistically significant. The estimated results support the hypothesis that the conditional volatility changes over times due to volatility clustering effect, and also due to temporal dependence. Furthermore the sum of coefficients is less than unity for all indices which indicates the stability of the model. The lock in system has a negative impact on volatility but not statistically significant, but the circuit breaker system has a significant positive impact on volatility for DSI but not for DSEG and DS20. The caretaker government has positive impact on volatility but not statistically significant, indicates that during the time periods of caretaker government led to inflows of capital which were invested in the DSE market, thereby influencing its volatility.

Journal : Kyushu Association of Economic Science Journal Japan, Vo 61. 173-191 Volume : 61 Year : 2011 Issue : 1
Pages : 173-191 City : Edition : Editors :
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