Risk-Return Relation and Time-Varying Volatility of Bangladesh Stock Market

Mostafa Ali(1),


(1) Department of Finance, University of Chittagong, Chittagong, Bangladesh

Abstract

The goal of this study is to investigate risk-return trade-off and nature and behavior of volatility of the Bangladesh stock market by using the daily data for the period of 2005 to 2016. The data set is segmented into four sub-datasets in order to uncover any changes in the risk-return relation and volatility persistence during Bangladesh stock market debacle of 2010-2011. This study used symmetrical and asymmetrical GARCH models with three error distributions to conduct the analysis. This study found an insignificant risk-return relation for all subset of data which signify that return is not a price factor in Bangladesh stock market. The study further showed significant asymmetric leverage effect for all sub-periods whereas greater leverage effect was detected during debacle period. Moreover, findings of the study evident that both GFC and stock market debacle increase the volatility of Bangladesh stock market. To the best of the authors’ knowledge, no study has been conducted in Bangladesh stock market determining the asymmetric volatility effect. Besides, unlike the previous studies, this study considered the structural breaks (i.e., the effect of Global financial crisis (GFC) of 2008-2009 and Bangladesh stock market debacle of 2010-2011) to examine whether the investors react differently to the same type of news during the crisis and normal periods.

Keywords

risk-return relation, stock market volatility, GARCH family of models, Bangladesh stock market debacle

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DOI: https://doi.org/10.33455/ijcmr.v1i2.94

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