The IUP Journal of Applied Finance
Exploring the Impact of Policy Reforms on Market Efficiency: Evidence from Dhaka Stock Exchange

Article Details
Pub. Date : April, 2021
Product Name : The IUP Journal of Applied Finance
Product Type : Article
Product Code : IJAF10421
Author Name : Nikhil Chandra Shil and Anjuman Tasnuva Kotha
Availability : YES
Subject/Domain : Finance
Download Format : PDF Format
No. of Pages : 23



Stock markets in Bangladesh have been suffering from shocks at gaps of around five years regularly. Due to these market failure experiences, stock markets in Bangladesh have undergone serious policy reforms in different instances to improve market efficiency. Out of the two stock markets, Dhaka Stock Exchange (DSE) is the main bourse of the country. In this paper, policy reforms have been grouped into 12 categories with reference to different time frames and a total of 3,113 Daily Market Return Index from 2006 to 2018 have been captured to explore the impact of each policy reform on market efficiency. Both nonparametric tests (Kolmogorov-Smirnov test and Run test) and parametric tests (autocorrelation and ARIMA test) are conducted in support of market efficiency. While market return index is used as independent variable, market efficiency is used as dependable variable to draw statistical inferences. The analysis reveals that the market is not efficient even in weak form; the market return is not normally distributed, and it lacks randomness and dependency, which violates the nature of random walk model. Amid all these negative connotations, the result reports an improvement in dependency parameter which becomes insignificant over the years due to the reform initiatives the market is going through. From the recent behavior of data is assumed that if this trend continues, the market return will follow random walk model and the market will become weak form efficient.


Smooth functioning of capital market is one of the important indicators to demonstrate the practices of transparency and accountability in managing the financial affairs of corporate sector. Capital market works as a mediator between general public and businesses which rests on trust and confidence. Businesses use stock market mechanisms to become public which becomes very important to supply capital for the expansion of businesses. General public get the opportunity to invest money in stocks and easily engage themselves in buying and selling shares as per their choice. Investment in stocks is very attractive due to its liquidity characteristics along with the opportunity of both revenue gain (in the form of dividends) and capital gain (selling at a higher price than the original costs). Stock market movement (upward or downward) signals the good or bad health of the economy. It acts like a barometer of the economy and thus stock market becomes a very important issue for research to financial analysts, investors, practitioners, academicians, regulators, etc. Regulators are very much


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