Evidence of Interdependence between Listed Companies of Major Sector in Dhaka Stock Market

Abstract

This article focuses on the major companies of different sectors that trade on the Dhaka stock market. In the Dhaka stock exchange, different sectors played a significant role. These sectors have a significant influence on the Dhaka stock market index. Previous research mainly focused on the connection between stock markets and GDP, currency rates, commodities, oil, and so on, but did not focus on the connection between companies inside stock markets. Therefore, it is necessary to estimate the correlation between the companies in various sectors. This article explores the volatility and interrelationships between the companies that can be modeled in DCC-GARCH framework. Concurrently, Diebold and Yilmaz's technique was applied to investigate spillover effects and sector-wise company interconnectedness for robustness purposes. From the sample data, it was observed that the pairwise correlation in the companies is positive and significant. The DCC-GARCH model result revealed that there is evidence of volatility and that it exists over a longer period. The empirical findings indicate significant volatility as well as evidence of interdependence among the listed companies. Dhaka Bank, Aftabauto, RENATA, PRIMETEX, and HRTEX are the most commonly identified shock receivers and transmitters. Diebold and Yilmaz's findings are similar to those obtained using the DCC-GARCH method in that there is an indication of strong interdependence and spillover effects. The findings are essential for micro-investors and the policymakers to make further advancements not only important for a single nation but also for other countries.