Factors of Share Price Volatility: Empirical Evidence from Private Commercial Banks in Bangladesh

Mohammad M Hossain

doi:10.7176/rjfa/11-4-12

Abstract

The objective of this study is to investigate the fundamental factors of share price volatility in Bangladesh specially the private commercial banks listed in the Dhaka Stock Exchange (DSE) Ltd. The price of shares in DSE is so volatile that it swings more frequently that’s why investors become puzzled while making an investment decision. Thus, this study tries to investigate the association of share price with some fundamental factors like earnings per share, dividends per share, assets growth, bank size and two new variables namely capital to risk-weighted assets ratio and non-performing loan to total loans. Share prices of 18 commercial banks listed in DSE from 2014 to 2018 totaling 90 observations have been considered for analysis. This study applied panel data set in regression model using Fixed-Effects with Driscoll and Kraay’s Standard Errors to test the hypothesis by STATA 13 software. The empirical result of the study presents that earnings per share, dividends per share, bank size and non-performing loan to total loans significantly affect the market price of shares. This study will extend the literature on factors of share prices in an emerging economy like Bangladesh. Furthermore, this study could be extended further by considering all listed firms of DSE which will give us more insight into share price volatility in Bangladesh. Keywords: Share price volatility, Commercial banks, Investment decision, DSE, Bangladesh DOI: 10.7176/RJFA/11-4-12 Publication date: February 29 th 2020

Highlights

Financial system is the mechanism of an economy that encompasses all the value-adding activities of a country
Srinivasan (2012) noticed that understanding the impact of various fundamental variables on stock price is very much helpful to investors as it will help them in making profitable investment decisions
3.4 Research Model The current study examines Market Value per Share as a function of Earnings per Share (EPS), Dividends per Share (Div.), Return on Equity(ROE), Assets Growth(AG), Bank Size (BS), Capital to Risk-Weighted Assets Ratio(CRAR) and Non-performing Loan to Total Loans(NPL)

Summary

Introduction

Financial system is the mechanism of an economy that encompasses all the value-adding activities of a country. This system consists of different types of organs like financial markets namely capital market, money market, and financial institutions which include banks, insurance companies, leasing companies, microcredit institutions, etc. Investors take into account how their total returns are divided between dividends and market price appreciation (Khan, 2009). The yields from such investments vary depending on the performance of the individual stock in a market and the fluctuations of the stock price (Bhattarai, 2014). Money supply influences the equity stock prices of the Malaysian capital market (Ibrahim, 2003)

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