Time-varying volatility and equity returns in Bangladesh stock market

Abstract

This article empirically examines the time-varying risk return relationship and the impact of institutional factors such as circuit breaker on volatility for the emerging equity market of Bangladesh [namely The Dhaka Stock Exchange (DSE)] using daily and weekly stock returns. The DSE equity returns show negative skewness, excess kurtosis and deviation from normality. The returns display significant serial correlation suggesting stock market inefficiency. The results also show a significant relationship between conditional volatility and stock returns, but the risk-return parameter is found to be sensitive to choice of samples and frequencies of data. Overall, the coefficient of the risk-return parameter is negative and statistically significant. While this result is not consistent with the portfolio theory, it is possible theoretically in emerging markets as investors may not demand higher risk premia if they are better able to bear risk at times of particular volatility (Glosten et al., 1993). While lock...