LAUNCHING ISSUE: Role of financial markets in economic development/ Volume 1, Issue 1

Original Research Article | Open Access

A Random Walk Down the Dhaka Stock Exchange Lane
Md. Kamrul Bari, xxxx Dr. Melita Mehjabeen, xxxx Dr. A. K. Enamul Haque xxxx
Published Online: 9 December 2021 | Published In Print: 28 December 2021 | https://doi.org/10.54728/2112091639050575

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Abstract

Market efficiency has always been a matter of keen interest to the researchers of finance. Since the advancement of this concept, researchers are consistently investigating the market efficiency of different financial markets. Bangladesh, being one of the emerging economies, has also attracted the attention of many researchers. The researchers have investigated the realities regarding the market efficiency of both the stock exchanges of the country. Most of their investigations reveal that the Dhaka Stock Exchange (DSE) and the Chittagong Stock Exchange (CSE) are inefficient. This research, however, did not stop at revisiting market efficiency alone. Whether the return series follows a long-memory process, has also been tested. Besides, non-parametric tests have also been conducted to confirm the results of the parametric tests and vice versa. It generated a more reliable estimate of market efficiency for the period under study. Results of the Autoregressive Fractionally Integrated Moving Average (ARFIMA) model confirm that the return series does not follow a long memory process, and any shock in the system will eventually vanish. The findings of other tests (the run test, the Augmented Dickey–Fuller (ADF) test, the Kwiatkowski–Phillips–Schmidt–Shin (KPSS) test, and the Kolmogorov-Smirnov (K-S) test) suggest that the return series of the DSE are time-series stationary, non-normal, and do not follow a random walk. Given these results, we must echo the prior researchers to conclude that the stock market of Bangladesh is not efficient for the period of 2015 to 2020. These findings add new knowledge to the existing knowledge pool about market efficiency and long memory of the stock market of Bangladesh.