Reasons For Fluctuations in Share Prices in Secondary Market.

Research Paper On
The Reasons for Fluctuations in Share Prices in Secondary Market: An Empirical Study on Chittagong Stock Exchange (CSE)
Shahjalal University of Science and Technology, Sylhet 3114.

This Research Paper has been prepared for the submission into the Department of Business Administration, Shahjalal University of Science and Technology, Sylhet-3114, as a partial requirement for the fulfillment of the Masters of Business Administration Degree Program.
A Research Paper on
The Reasons for Fluctuations in Share Prices in Secondary Market: An Empirical Study on Chittagong Stock Exchange (CSE)
Course Code: BAN 509 Course Title: Research Paper
SUPERVISOR Mr. Zillur Rahman

Assistant Professor Department of Business Administration Shahjalal University of Science and Technology Sylhet 3114.
SUPERVISEE Tahsina Haque Simu

Registration no. 2004720004 MBA 1st Year 2nd Semester Department of Business Administration Shahjalal University of Science and technology Sylhet 3114.
Acknowledgement
This research paper is the outcome of joint efforts of a good number of people who have contributed in various forms. But, before going to thanks all of them I want to express my heartful gratitude to Almighty Allah who has created all the creatures of the universe. I am highly grateful to my supervisor Mr. Zillur Rahman, Assistant Professor, Department of Business Administration, Shahjalal University of science and Technology, Sylhet for his valuable suggestions, guidance, constructive criticism and encouragement through the progress of the work. I would like to thank Mr. Md. Nazrul Islam, Dean and Head, Professor, Department of Business Administration, Shahjalal University of science and Technology, Sylhet and also the Chairman of the Research Paper Evaluation committee for steering the conduct of the examination and evaluation of our course BAN 509. My heartful gratitude goes to all the teachers of the Department of Business Administration, Shahjalal University of Science and Technology, Sylhet for their helping and friendly behavior. I acknowledge the information, views and options of the target group i.e. the investors and people associated with Chittagong Stock Exchange(CSE) whom I interviewed during the field level survey and also express my humbly apology to those persons who helped me but may not find their names in my narration. And finally, I would like to thank my parents because all of my academic achievements are the outcome of their sacrifice.
Abstract The paper aims to find out the reasons behind fluctuations in share prices in the Chittagong Stock Exchange during past years. Fluctuations in share prices are critically viewed by the investors and deter them from investing and as they view share price fluctuations as a sign of market stability and efficiency. As a result the capital flow in the secondary market may be hampered. The developing economies are looking forward to their capital markets as the engine for future growth as its presence ensures mobilization of funds from surplus units to the deficit unit. The capital market of Bangladesh is small, underdeveloped and inefficient. Of the total financial system, the nonsecurities part accounts for majority share of financial activities. As a developing country, Bangladesh needs to strengthen its capital market. This paper aims to explore the present scenario of secondary market in Bangladesh, to identify the causes of backwardness of the capital market caused by fluctuations in share prices in secondary market and to produce some viable recommendations to strengthen the secondary market.
CHAPTER 1 Prologue Secondary Market in Bangladesh Objective Scope Methodology Limitations
1.1. Secondary Market in Bangladesh A strong and well-structured secondary market is the hub of capital market, which bears paramount importance in the economic development of a country. It is not a mere coincidence that almost all the developed nations exhibit a strong secondary market. It is perceived to act as the medium of transactions between interested parties. Of the total financial system, the non-securities part accounts for more than ninety percent of the financial activities in the country. The secondary market, also known as the aftermarket, is the financial market where previously issued securities and financial instruments such as stocks, bonds, options, and futures are bought and sold. The term "secondary market" is also used refer to the market for any used goods or assets, or an alternative use for an existing product or asset where the customer base is the second market. In the secondary market existing securities are sold and bought from one investor or speculator to another, usually on an exchange. After the initial issuance, investors can purchase from or sell to other investors in the secondary market. It is a precondition for sustained economic development as it forces the economic growth of a developing country. The major reason for the existence of the secondary market is to provide liquidity of shares and diversified instruments which helps increase market capitalization. Stock market can perform well to meet the continuous financial needs of business enterprises if there exists a congenial environment for boosting confidence of both stock market operators and investors (Ahmed, M.F., 1996). The growth and development of stock market in a market economy largely depends upon the creation of enabling environment for boosting up investors confidence. Lassitier (1988) has identified five prime environment ingredients that contribute to the enhancement of investors confidence and in turn, healthy growth of stock market. These are: a) stable political environment b) investment sensitive tax and regulatory environment c) reliable flow of information d) liquidity and e) fair financial disclosure practice, codes of conduct and smooth trading guidelines. Demirguc-Kunt and Levine (1996), Singh (1997) and Levine and Zervos (1998) find that stock market growth plays an important role in predicating future economic growth in situations where the stock markets are active.
As a general rule, the greater the number of investors that participate in a given marketplace, the greater the centralization of that marketplace, the more liquid the market. The capital market of Bangladesh is not as effective needed to build a strong and sound economy. Addressing the issue regarding our capital market, 'liquidity' and lack of "instrument" would top the list of challenges that we have right now. (Kh. Ashadul Islam Ripon, 2007). By providing liquidity of shares and diversified instruments the secondary market contributes in increasing market capitalization. Investors become more confident and exert a positive impact on the Gross Domestic Product (GDP) of our country. Neighboring countries such as India and Pakistan have market capitalization of more than 75% of their GDP. In contrast Bangladesh capital market accounts for a far lesser share of its GDP indicating ample scope for future intensification in this sector. (Kh Asadul Islam Ripon, 2007) To make the secondary market effective we should address two important aspects which act as determinants of stock market effectiveness. ..volatility and market efficiency are two important features which will ultimately determine the effectiveness of the stock market in economic development.(M. Kabir Hassan, et all,2000). A report published on The New Age stated expert opinion on recent price hike in the year 2007 which reflected the volatility in share prices of the low profile companies. Those were the non-performing and AGM defaulting companies. According to the experts the hike was unreasonable. (The New Age, March 21, 2007) The volatility of share prices in the secondary market aid to the general investors intention of not to invest in the secondary market in our country. Many stock issues attained abnormally high price earning ratio within a very short period. Many shares are heavily over-subscribed and some of the stocks appear to be selling well above their intrinsic value for a short period because of the high speculation about expected future earnings ("speculative bubble"). (Mazhar M. Islam) The main problems of the secondary market of Bangladesh are: serious dearth of risk-free assets in the secondary market to individual buyers, unfair treatment to the investors (mal-trading and manipulation), lack of market information, absence of varied tradable financial instruments, the deplorable standard of research information dissemination and book keeping, unprofessional approaches of brokers to their services and so on and so forth. According to KVIBACK(1998), It is difficult for Bangladesh to move forward for several reasons: 1. weak governance at the institutional and market levels; 2. high nonperforming assets among the nationalized commercial banks (NCBs); 7
3. poorly defined and overlapping responsibilities of the Bangladesh Bank, Securities and Exchange Commission, and Ministry of Finance; and 4. the lack of incentives and private initiative to drive market developments. The research aims at identifying the reasons for fluctuations in share prices in the secondary market which is a prime characteristic of Bangladesh stock market and suggesting some viable recommendation to reduce the phenomena. 1.2. Objective The main objective of the study is to identify the causes for fluctuations in share prices in Bangladesh by conducting an empirical study on Chittagong Stock Exchange (CSE) and to suggest some policy measures in this regard. However, the study covers the following supporting objectives: 1. To explore the present scenario of secondary market in Bangladesh and its development. 2. To focus on the recent trends in the secondary market. 3. To detect the causes triggering fluctuations in share prices in the secondary market. 4. Focusing on some corrective measures in this context. 1.3. Scope The topic is very much relevant at present. A strong secondary market is a prerequisite of any sound economic structure. The secondary market in the private sector is an important constituent of the capital market. This market provides facilities for trading in securities which have already been floated in the primary market. Thus, an organized and well-regulated secondary market (stock market) provides liquidity to shares, ensures safety and fair dealing in the selling and buying of securities and helps the monitoring of firms in the process of collection and use of funds by them. We find sound secondary market as a prevalent characteristic of developed countries. 1.4. Methodology In order to obtain a clear picture of the relevant and related issues primary data were collected from people related with Chittagong Stock Exchange and stock trading. Primary data were arranged by analysis. Several journals, magazines, articles and newspapers are collected and analyzed. Several websites are searched for necessary information. From the collected data a few recent trends are highlighted and analyzed with numerical data. Both the prospects and challenges faced by the 8
different parties are discussed. The effort was directed to detect the reasons causing fluctuations in share prices in secondary market. a. Sources of data: Both primary and secondary data were used in the research. 1. Sources of primary data: Primary data are collected from the interview with the executives of DSE, CSE, BSB, ICB, prospective investors, stockbrokers and other professionals. 2. Sources of secondary data: Secondary data were collected from the following sources: Publications of Securities and Exchange Commission (SEC), Dhaka Stock Exchange (DSE), Chittagong Stock Exchange (CSE), Stock Market Reports on Daily newspapers, Bangladesh Bank, Bangladesh Bureau of Statistics (BBS), etc. Bangladesh Economic review Books and Journals Internet web sites. b. Sampling Design: The performance of DSE and CSE are taken from the year 2002 to 2008. The data of 5 companies of CSE have been taken for analysis. The data of dividend payment has been taken from the year 2002 to 2008. c. Analysis of data: Both quantitative and qualitative analyses were conducted in the research. Numeric data are analyzed with some statistical tools such as simple average, standard deviation, skewness, trend analysis, growth rate, etc. Some data are graphically represented with bar charts, line charts etc. Qualitative information is presented with logical explanation. 1.5. Limitation: Large organizations has scattered infrastructures, which made collection of necessary data time-consuming and difficult. The time was so limited for completing a task like this, which needs much time for analysis. Lack of relevance in analysis by reason of inexperience. Lack of cooperation from different sources accelerated the quandary.
CHAPTER 2 Secondary market scenario in Bangladesh
Literature Review Secondary market Scenario
The role of secondary market in developing countries: Bangladesh Perspective
2.1. Literature Review 10
The apex organ of Bangladesh Capital market is the Securities and Exchange Commission (SEC). It was formed on 8 June, 1993 under the Securities and Exchange Commission Act 1993 as a capital market regulator with a view to ensuring proper issuance of securities, protection of the interest of investors in securities, development of the capital and securities markets, and regulation of the capital and securities market in Bangladesh. The capital market of Bangladesh is divided into different segments. The chart below shows different parts of our capital market. Financial Market
Money market
Capital Market
Securities Market
Non-securities Market
Primary Market
Secondary Market
Chart: Capital Market Structure
The capital market in Bangladesh received significant boost in last year. All share price indexes, turn over as well as market capitalization, improved substantially. However, the market lacks reflection of company fundamentals and the possibility of price manipulation in the market through insider trading cannot be ruled out. Unduly high increase of prices in some selected sectors (investment and insurance) does not reflect signs favoring sustainable market development. Moreover, volatility in the market seems to have magnified recently, which needs careful investigation and monitoring by the stock market regulators. There are two full-fledged automated stock exchanges the Dhaka Stock Exchange (DSE) and the Chittagong Stock Exchange (CSE) ) which deal in the secondary capital market in Bangladesh. The steady investment atmosphere prevailing throughout 2007 with good return prospects, stable market growth and uninterrupted trading as a result of political stability attracted a good number of investors to the market. The index of the prime bourse of the country was at a 10 year high in the 2007 year end (up 66 percent), which made it Asias top performer after China. The steady
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investment atmosphere prevailing throughout 2007 is considered to be one of the main reasons behind that surge. 2.2. Secondary Market Scenario The highlights of Bangladesh secondary market is given below. The share price index in Dhaka Stock Exchange (DSE) shows a increasing trend with a downfall in the year 2006.
Table: Trading Operation in Dhaka Stock Exchange
Year 2001 2002 2003 2004 2005 2006 2007 2008 Up to June
No. of listed securities 249 260 267 256 286 310 350 378
Issued Capital (In million taka) 11 33,454.3 8 35,203.0 14 46,055.0 2 49,532.0 22 70,313.0 12 118,437.0 14 214,470.0 -----284,380.0
IPO
Market Capital (In million taka) 65,222.8 71,262.0 97,587.0 224,923.0 233,075.0 323,368.0 753,950.0 931,025.0
Turnover (In million taka) 39,868.3 34,984.9 19,152.1 53,181.1 64,834.8 65,069.3 322,820.1 69,954.9
Price Index 817.79 822.34 967.88 1,971.31 1,275.05 1,321.39 2,535.96 2,588.03
Source: Bangladesh Economic Review, 2008
The number of securities (including mutual fund and debentures) listed with the DSE increased to 378 by June 2008 from 350 of June 2007. By the end of June 2008, the issued capital of listed securities stood at Tk. 284380 million, which is 32.6 percent higher than that of June 2007. Up to June 2008, market capitalisation of securities stood at Tk. 931025 million. General share price index of the DSE stood at 2588.03 in June 2008, which was 2535.96 in June 2007.
The number of securities listed with the CSE reached 231 as of June 2008 from 227 as of June 12
2007. By the end of June 2008, the issued capital of listed securities stood at Tk. 102220 million which is 14.62 percent higher compared to that at the end of June 2007. As of June 2008, market capitalisation of securities reached Tk. 777740 million. General share price index of the CSE reached 9050.56 as on June 2008, which was 7657.06 on June 30, 2007.
Table: Trading Operation in Chittagong Stock Exchange
Year 2001 2002 2003 2004 2005 2006 2007 2008 Up to June
No. of listed securities 177 185 199 195 210 213 227 231
IPO 9 9 10 3 16 6 13 ------
Issued Capital (In million taka) 29,652.7 31,079.9 41,967.6 46,978.7 55,519.3 69,378.4 89,173.9 102,220.0
Market Turnover Capital (In million taka) (In million taka) 56,363.5 1,479.62 60,467.7 13,586.1 85,312.3 6,688.6 215,010.8 17,551.3 219,942.8 14,042.7 270,510.7 15,893.1 612,580.0 52,590.3 777,740.0 10,347.6
Price Index 1,836.87 1,841.14 1,642.78 3,597.70 3,378.68 3,724.39 7,657.06 9,050.56
Source: Bangladesh Economic Review, 2008
The billboard below shows the condition of the secondary market during last two quarters of the year 2008.
Table: Secondary market Billboard (Figures in million)
Total number of listed securities Total No. of Tradable securities Total issued capital of all listed companies Total Market capitalization All Share Price Index
Dhaka Stock Exchange As on As on 31st 30th Sept Dec,2008 2008 400 412 2,602 2,759 349,621 372,156 1,068,27 5 2,498.45 1,059,530 2,309.35
Chittagong Stock Exchange As on 30th As on 31st Sept 2008 Dec,2008 234 2,461.69 119,446.5 0 819,898 8,996.69 238 2,629.15 121,661.13 807,875 8,692.74
Source: (SEC quarterly report and CSE Portfolio; July-Sep 2008, and Oct-Dec 2008)
The market billboard shows that the number of listed securities reached to 412 in DSE and 238 in CSE. The number of tradable securities was 2759 in DSE and 2629.15 at CSE at the year end. Issued Capital at DSE and CSE amounted tk. 372,156 million and tk. 121,661.13 million respectively. Market Capitalization reached at tk. 1,059,530 million and tk. 807,875 million at the end of year in DSE and CSE whereas the price index was 2,309.35 and 8692.74. 13
2.2.1. Fluctuations in share prices represented by movement in index. The two charts shown below depict the trend of market behavior in DSE and CSE.
Chart: Trend of market behavior in DSE
800,000
10000
8000 600,000 6000 400,000 4000 200,000
2000
0
J an 0 , 8 Feb 0 , 8 Mar, 08 Ap 8 ril,0 May 8 ,0 J un e,08 J u ,0 ly 8 Au 0 g, 8 Sep 0 , 8
M arket C apitalization
Turnover
All Share P rice Index
Chart: Trend of market behavior in CSE
2.2.2. Size of stock market in Bangladesh (2002-2008). The size of Bangladesh stock market is small. Analysts frequently use the ratio of market capitalization to GDP as a measure of stock market size. In terms of economic significance, the assumption behind market capitalization is that market size is positively correlated with the ability to mobilize capital and diversify risk on an economy wide basis. Table below shows the size of Bangladesh stock market.
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Market Capitalization ratio has increased from 4.82% in 2002 to 14.28% in 2006. Then the stock market experienced a sudden growth in market capitalization in the nest two years, 28.92% in 2007 and nearly 31.53% in 2008.
Table: Stock market size
Total Market Capitalization Market Capitalization (in million taka) to GDP (%) 2002 131,730 4.82 2003 182,899 6.08 2004 439,934 13.21 2005 453,018 12.22 2006 593,879 14.28 2007 1,366,530 28.92 2008 1,708,765 31.53 Descriptive Statistics of Market capitalization to GDP Mean 15.86 Standard deviation 10.46 Skewness 1.04 Minimum 4.82 Maximum 29.95
Source: Bangladesh Economic Review, Chittagong Stock Exchange, Dhaka Stock Exchange and Securities and Exchange Commission (Annual Report and quarterly review), various issues
Year
Mean market capitalization 15.86 with a standard deviation of 10.46 points to high level of volatility in market capitalization. The total market capitalization at DSE reached Tk.1,059,530 million in December 2008 with 412 listed securities consisting of 276 companies, 16 mutual funds, eight debentures, 111 Government bonds, and one corporate bond. The capital market reached new heights in terms of market capitalization. At the end of 2008, market capitalization at DSE was 19.3 percent of the country's GDP compared with 15.7 percent in December 2007.
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The second indicator of market size is the number of companies listed. The rationale of including this measure is that as the number of listed company increases, available securities and trading volume also increases. The table below shows the number of listed companies in both exchanges.
Table: Number of listed companies in DSE and CSE
Year
Number of Companies listed Dhaka Stock Chittagong Stock Exchange 249 260 267 256 286 310 350 412 Exchange 177 185 196 198 210 213 227 238
2001 2002 2003 2004 2005 2006 2007 2008
Source: Bangladesh Economic Review, Chittagong Stock Exchange, Dhaka Stock Exchange and Securities and Exchange Commission (Annual Report and quarterly review), various issues.
The table shows that the number of listed companies have grown from 177 to 221 in the year 2008 whereas the figure is 412 in DSE in 2008. 2.3. The role of secondary market in developing countries: Bangladesh Perspective The secondary market plays an important role in quickening the pace of economic development. The developing economies are looking forward to their capital markets as the engine for future growth as its presence ensures mobilization of funds from surplus units to deficit units. Secondary market pools the money from a wide number of people and channels it to the ultimate users. It performs a critical role in acting as an intermediary between savers and companies seeking additional financing for business expansion. Vibrant capital is likely to support a robust economy. 2.3.1. Reasons behind the underdevelopment: A developed stock market is an important prerequisite for moving into a more mature growth phase with more sophisticated conglomerates. Today with a $67 billion economy and per capita income of roughly $500, Bangladesh should really focus on improving governance and developing advanced market products. Despite a challenging political environment and widespread poverty, Bangladesh has achieved significant milestones on the social development side. With growth reaching 7 percent in 2006, the 16
economy has accelerated to an impressive level. It is noteworthy that some of the leading global investment banks have identified Bangladesh as a key investment opportunity. However, the capital market in Bangladesh is still underdeveloped, and its development is imperative for full realization of the countrys development potential. The chart given below shows total market capitalization as a percentage of GDP in Bangladesh compared to neighboring countries from the year 2003 to 2007. It is evident that the capital market of Bangladesh has not been able to play a vital role in the economic development of the country. Almost all the countries have experienced accelerated growth in market capitalization as a percentage of GDP. But we could manage to achieve a very small rate of growth which is also much lesser than the South Asian Average.
Table 1: Market capitalization of listed companies as % of GDP
Country Bangladesh India Nepal Pakistan Sri Lanka South Asia Avg.
2003 3.12 46.56 7.63 19.89 14.36 39.54
2004 5.86 55.33 11.73 29.60 17.70 48.07
2005 5.04 68.39 16.43 41.95 23.44 60.24
2006 5.83 89.37 20.20 35.88 27.47 76.83
2007 10.04 155.35 48.10 48.93 23.35 133.95
Source: The World Bank WDI database.
It is encouraging to see that the capital market of Bangladesh is growing, though at a slower pace than man would like, with market development still at a nascent stage. The market has seen a lot of developments since the inception of the Securities and Exchange Commission (SEC) in 1993. After the bubble burst of 1996, the capital market has attracted a lot more attention, importance and awareness, that has led to the infrastructure we have in the market today. Access to high quality and credible corporate information remains a major problem in the market. While a handful of institutional investors may enjoy certain benefits since they have an investment unit manned with qualified officers, nothing exists for retail investors. And, in the absence of independent research houses, retail investors primarily focus on advice given by their brokers, which often consists of market rumours. This is not acceptable, and it often leads to enormous losses for small investors who are vital for a low-income and emerging market like Bangladesh. Filtering of information among different types of investors may leave scope for manipulation; this assumption had been proved right in the 1996 market meltdown at the cost of many individuals and households. 17
The market does not have an adequate number of fundamentally sound scrips. The market has to reach such a stage of development that companies will take it as a serious alternative to bank financing. The government has reduced the interest rates on savings instruments, however this particular market is still limited to the commercial banks, and individual investors do not have access to these instruments. These savings instruments are considered risk-free, and since they are not present in the capital market, the overall risk of investment for an investor remains very high. A portfolio investor does not have the option of reducing his average portfolio risk by adding these risk-free opportunities. The ratio of institutional to retail investors is still low in Bangladesh, even relative to other emerging markets. Institutional investors bring long-term commitment and a greater focus on fundamentals and hence stability in the market. The presence of institutional investors is also expected to ensure better valuation levels due to their specialized analytical skills. Corporate governance of international standard is still lacking. Multinational corporations and institutions operating in Bangladesh often adhere to a very high international standard compliance regime. Parent companies of most of these corporations and institutions have their scrips listed in developed markets. Unless the local market adheres to, and effectively enforces, a standard corporate governance system, there will not be a level-playing ground for international business houses vis--vis local operators. An important aspect for capital market is reflection of fair value of scrips. This is not adequately present in the current scenario, and due to this reason the market is not receiving the attention of an important segment of investors, both foreign and local. Investors are perhaps depending more on speculative analysis, resulting in volatility in the market, as opposed to fundamental analysis, which could attract more stable long-term investors who are sure about their investment tenure and expectations.
2.3.2. Journey since the 1996 As on 7th August, 1996 there were 203 and 74 listed securities with DSE and CSE, respectively. The listed securities comprise shares of 185 companies, 7 mutual funds and 11 debentures in DSE. 18
In CSE, total number of share issues is 67 and 7 mutual funds. The total market capitalization of securities was about dollar1813.63 million on 7th August in DSE alone. The secondary securities market witnessed exceedingly high activities after the election of June 1996 and continued till a major crash in the market in the end of 1996. The bull run that took place in 1996 has left a number of positives for the market. A lot of investment-friendly regulatory reforms have been implemented by the SEC. We now have stronger surveillance and improved rules relating to public issue, rights issue, acquisition, mergers and so on. All these fundamental developments, which were well-overdue, followed the 1996 bull-run. It was a learning experience for Bangladesh, and the desired level of changes was initiated by the market watchdog subsequently. In the secondary market, surveillance is more active and particular than ever before. These developments, that are widely appreciated, are actually the fundamental requirements that are in place today resulting from the continuous efforts of the government and multilateral agencies. 2.3.3. Scenario in 2008 A healthy, transparent and dynamically evolving financial system helps mobilize savings and allocate resources, ensure safe and efficient payment and settlement arrangements and ease financial crisis management. Efforts continued in FY08 to establish a healthy and transparent financial system in the country. In addition to the challenges emanating from the internal and external shocks that affected the real sector, the share market witnessed a robust growth during FY08 supported by strong economic prospect and outlook. As there is demand of securities having good fundamentals in the capital market, at the time of rise in demand, the price of securities listed on exchanges showed a remarkable upward trend that turned the capital market strong. On the other hand, major economic indicators showed a positive trend to support the gradual development of the market. As a result, all the indicators of the capital market increased in FY08 as compared to FY07. The capital market was so active during FY08 because of significant improvements made in protecting investors' interest and boosting confidence of investors in capital market, introduction of automated trading through electronic registration and transfer of securities, simplifying rules and regulations and notifying guidelines on corporate governance on comply or explain basis. These measures created investment friendly atmosphere in the capital market and positive impact noticed in both primary and secondary market. Thus, the depth of share market and daily turnover of securities transactions have notably increased. Besides, positive public perception about the Bangladesh Bank supervision of banks and financial institutions in addition to the general Securities and Exchange Commission (SEC) supervision of public companies continued to attract strong investor interest in 19
the new capital issues of banks and financial institutions. This reawakened investor confidence in the capital market should extend to new issues of listed companies in other economic sectors with stronger SEC supervision, more demanding audit and financial disclosure standards, and credit rating of issuers by independent rating agencies.
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CHAPTER 3 Chittagong Stock Exchange (CSE): An overview Background CSE initiatives in market development Chittagong Stock Exchange: The Mission Chittagong Stock Exchange: The Vision Chittagong Stock Exchange: The Objectives Trading Systems in Chittagong Stock Exchange CSE Indices Scenario in CSE
3. 1. Background The SEC approved the establishment of the second stock exchange of the country, Chittagong Stock Exchange (CSE) by issuing the Certificate of Registration to CSE in February, 1995. CSE consists 21
of 70 members representing profession, trade, commerce and industry of Chittagong. It is managed by a Board of Directors, comprising of 12 elected directors and 6 directors to be nominated by the Commission. CSE was incorporated as a public company under the Company Act, 1994 on 1 April, 1995. Chittagong Stock Exchange Ltd. (CSE) has a policymaking Body of 24 members, of whom 12 are elected and 12 are non elected. This Board comprises of one President, three Vice Presidents and 19 Directors. There is an independent secretariat headed by a Chief Executive Officer (CEO).
Chart: Chittagong Stock Exchange structure
The responsibilities of Chittagong Stock Exchange include the followings. Establishing listing requirements. Approval , suspension or removal of listing privileges of companies. monitoring listed companies in compliance with legal regulatory provisions Permission of dual listing. Providing the screen based automated trading of listed Securities.
Settlement of trading. (As per Settlement of Transaction Regulations). Gifting of share / granting approval to the transaction/transfer of share outside the trading
system of the exchange. Market Administration & Control. Market Surveillance. Publication of Monthly Review. Monitoring the activities of listed companies. (As per Listing Regulations).
Investors grievance Cell. Investors Protection Fund.
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Announcement of Price sensitive or other information about listed companies through online. Parliament
Ministry of Finance
Securities and Exchange Commission
Dhaka Stock Exchange
Chittagong Stock Exchange
Chart: Regulatory framework in Chittagong Stock Exchange
3.1. CSE initiatives in market development CSE was very keen on development activities in 2008. From the very beginning CSE tried to get along with the investors. On the continuation second CSE capital market fair was organized in Sylhet. The first one was organized in Chittagong in 2005. CSE also organized a monthly training program about capital market for the third time in March. The fourth and fifth was arranged in June and the sixth and seventh in September. In the same time CSE arranged a five-day certification course in collaboration with National Stock Exchange of India Ltd. to make people working in brokerage firms and financial institutions aware of financial derivatives. In the year 2008, CSE extended its network to Khulna, Moulovibazar, Sylhet, Chhatak, and Hathazary in Chittagong.Up to now CSE trading network is extended to 11 cities and 4 upazillas.
3.2. Chittagong Stock Exchange: The Mission To create an effective, efficient and transparent market atmosphere of international standard to save and invest in Bangladesh in order to facilitate the competent entrepreneurs to raise fund and accelerate industrial growth for overall benefit of the economy.
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3.3. Chittagong Stock Exchange: The Vision CSE has always been very focused in developing a strong capital market in the country. It endeavors to improve its internal organizational capacities to make CSE a transparent, accountable and dynamic capital market institution. Externally, it also gives its best efforts to develop a balanced and vibrant capital market through empowering the other market participants and the investors. CSE will continue to devote itself in attaining these objectives to be able to contribute to the industrial and economic development of the country. 3.4. Chittagong Stock Exchange: The Objectives The CSE works with the following objectives to:
Develop a strong platform for entrepreneurs raising capital Provide an investment opportunity for small and large investors. Develop a transparent market thereby ensuring investors interest. Provide a fully automated trading system with most modern amenities to ensure; quick,
easy, accurate transactions and easily accessible to all;

Attract non resident Bangladeshis to invest in Bangladesh Stock market; Attract foreign institutional investors to invest in Bangladesh. Collect, Preserve and disseminate data and information on stock exchange Develop professional service culture through mandatory corporate membership. Maintain a research cell for analyzing status of the market and economy.
3.5. Trading Systems in Chittagong Stock Exchange 3.5.1. Automated Trading System In the secondary market, surveillance is more active and particular than before. Trading has now become automated, led by the Chittagong Stock Exchange through the central depository. In the 24
present automated trading environment, bids/offers, depth and required broker particulars are all recorded and can be retrieved for future reference. The Central Depository Bangladesh Limited (CDBL) was created in August 2000 to operate and maintain the Central Depository System (CDS) of Electronic Book Entry, recording and maintaining securities accounts and registering transfers of securities; changing the ownership without any physical movement or endorsement of certificates and execution of transfer instruments, as well as various other investor services including providing a platform for the secondary market trading of Treasury Bills and Government Bonds issued by the Bangladesh Bank. There are strict rules and guidelines, trading circuit breakers and international standard surveillance to protect investor rights and ensure fair play. The steady investment atmosphere prevailing with good return prospects, stable market growth and uninterrupted trading attracted a good number of investors to the market. The P/E ratio now stands at 20 times as compared to 14.1 times for emerging markets. Besides its regular/normal trading facilities, CSE offers additional services, Internet Trading Services (ITS) and Over-the-Counter (OTC) market. Internet Trading Services (ITS): CSE is not only the pioneer of establishment of nationwide trading mechanism. CSE introduced internet Based Trading in May 2004 to enable the remote investors to have trading facilities from home and abroad directly. Investors may have access to CSE trading network not only from the premises of the brokers but also from their PC/Laptop/Cell Phone through the internet from any corner of the globe. The CSE network allows its user to use internet as an order routing system for communicating clients orders to CSEs main trading engine through the brokers. Broker can provide this service to their client on obtaining necessary permission from the exchange. CSE has stipulated the minimum conditions to be fulfilled by brokers to start internet based trading services. The ITS is getting popular and the users of this module are increasing.
Over-the Counter Market (OTC): CSE has also established an Over-the Counter (OTC) market with a specific mandate to service small and medium innovative and high growth enterprises, in raising resources efficiently through the capital market. De-listed companies are also eligible to be traded on OTC. The trading System of OTC is automated. OTC market is only available at CSE. The structure of financial activities in CSE is depicted below. It shows that CSE is associated with 25
different types of organization like merchant banks, commercial banks custodian banks which are involved in underwriting of securities. Brokers of securities take part in the settlement of underwriting of securities.
Member Companies
Merchant Bank
Commercial Bank
Custodian Bank
Brokers of Securities
Portfolio Management
Settlement
Settlement
Underwriting new issues
Issue Management
Chart: Structure of financial activities in Chittagong Stock Exchange
All companies in CSE are graded by 5 levels called A, B, G, N, and Z. A Grade Companies Companies which are regular in holding the current annual general meetings and have declared and paid dividend at the rate of ten percent or more within sixty days from the date of declaration and submission of compliance report thereof to SEC within seven working days from the date of completion of disbursement. B Grade Companies
26
Companies which are regular in holding the annual general meetings, declared and paid dividend less than 10% and submission of the compliance report to SEC within the time limit belong to this category. G Grade Companies Greenfield companies belong to this category. N Grade Companies All newly listed companies except Greenfield companies will be placed in this category and their settlement system would by like B-category companies. Z Grade Companies Companies which have failed to hold the current annual general meetings or have failed to declare any dividend or which are not in operation continuously for more than six months or whose accumulated loss after adjustment of revenue reserve, if any, is negative and exceeded its paid up capital provided that the chief executive officer of the exchange may bring any other company under this category, if deemed necessary, with the prior written consent from the commission. 3.6. CSE Indices: Like other exchanges around the globe, CSE has also some indices to indicate the relative value of prices or values of listed securities on a particular day compared with a base day/prior day points. The well-recognized indices of CSE are: a) CSE All Share Price Index (CASPI) b) CSE-30 Index c) CSE selective Categories Index (CSCX) d) CSE Sector wise index CSE has been maintaining its All Share Price Index since 10 October 1995 using Chained Paasche method. Considering its limitations, CSE has replaced its old method of calculation by new one following Laspeyres Method where base index was set to 1000 points and the base date was 30 December 1999. This Index came into effect from 1 January 2000. With the same base date CSE has also incorporated CSE-30 Index that includes thirty selective stocks based on set criteria from all the listed companies with base index of 1000 points, which is very popular among the investors. This index also came into effect from 1 January 2000. CSE has played its pioneering role by introducing such a selective index as a benchmark index in the country 27
for the investors to have their exclusive view on the market and to help the other users of the index particularly the financial institutions and portfolio managers to use as an underlying for creating any index funds, portfolio and/or financial products like Index Futures, Index Options, ETF etc. In 14 February 2004 CSE has launched another index named CSE Selective Categories Index (CSCX). This index includes: A, B, G and N Categories stocks only. The base date of this index is 15 April 2001 and base index was set to 1000 points. Realizing the effectiveness of measuring the Sector wise performance of Bangladesh economy, CSE has pioneered by launching another index named CSE Sector Wise Index, which came into effect from 12 March 2005. All the securities listed in CSE are classified into 16 industry sectors. The CSE-30 and CSE Selective Categories Index (CSCX) are being broadcasting through CSE Automated Trading System and it is being updated automatically after every 3 minutes during trading hours. 3.7. Scenario in CSE Chittagong Stock Exchange passed another successful year 2008. In the year 2007, The total transaction at CSE amounted 52363.1 million which reached 100747 million showing an increase of 92.08%. On 16th OCTOBER 2008, CSE trade volume hit a new record of tk.1091.7 million, the highest ever mark amid buoyant stock trading. On this historic day, CSEs market capitalisation touched tk. 819 billion mark while the all share price Index( CASPI) closed at 8970.79 points which is also another record for the Exchange. The previous trade records on year to year basis are as follows:
Table: Trade records at CSE
Date 4 November 1996 21 November 2004 28 May 2007 26 June 2007 18 October 2007 22 October 2007 4 February 2008 21 April 2008 8 June 2008 12 October 2008 16 October 2008
Trade volume (in million taka) 365.9 366.7 367.5 454.8 457.7 569.1 631.2 716.9 883.1 897.3 1091.7
In the same year CSE all share price index reached 9368.8033 to make a new record of highest marks. At the end of 2007 total market capitalization was 612479.2 million taka. It showed a 28
31.90% increase at the end of 2008 amounting 807875.3 million. At the last trading day of 2007 CSE all share price index, CSE-30, CSEX index amounted to 7657.0590, 6935.4926 and 4921.2508 respectively which reached 8692.7457, 7566.9466 and 5680.5869 respectively at the end of 2008. It leads to an increase of 13.53%, 9.10%, and 15.43% respectively. The number of listed companies was 227 in 2007 which reached 238 by showing an increase of 4.85%. The dividend was paid by 149 listed companies in 2007 and 169 in 2008. The cash dividend yield was 2.00 in 2007 which reached to 2.61 in 2008 by showing an increase of 30.50%.
3.7.1. CSE Trading System: 2008 To provide the up to date trading logistics, CSE has been taking initiatives. In this regard CSE has been modifying its trading system. At present the CSE is processing the Request for Proposal for NTGS (Next Generation Trading System). CSE is the only stock exchange in the country which offers ITS (Internet trading services). 3.7.2. Regulatory Reform: 2008 SEC has reinstated Money Adjustment Facility from the 3rd February in 2007. It aids the trading operation of CSE members and increases liquidity in the market. The free trade limit has been increased to 5 crore from 1 crore. This also helped to make the trading operation flowing. Now the members of exchange can use the additional amount for transactions. The compliance level of the brokerage houses has also improved which lead to more investor confidence. Adherence to the rules and regulation is improving. The comparative market performance of CSE is shown below.
Table: Comparative Statement of Chittagong Stock Exchange
Indicators Total number of listed securities Total Issued Capital of all listed securities(Tk. in million) Total Market Capitalization of all listed securities (Tk. in million) All Share Price Index
As on 30th June 2007 219 8,1032.9 398,490
As on 30th June 2008 231 102,220 777,743
% increased 5.48 26.15 95.17
5,194.77
9,050.56
74.22
Market capitalization inclusive of new issues increased remarkable by 95.17 percent in Chittagong Stock Exchange in FY08 than that of FY07. In FY08, the amount of market turnovers in the 29
secondary market also increased by 134.5 percent at the Chittagong Stock Exchange. The securities market got a momentum during the year under report when both local and foreign investors took part in the trading of securities in wide scale. As a result, all indicators of the stock market increased notably in FY08. In FY08, all share price index in Chittagong exchange also increased by 74.2 percent. Day to day changes in price indices and market capitalization in FY08 mainly reflected local conditions with a momentous response during the year under report. Securities Trading
Dhaka Stock Exchange
Chittagong Stock Exchange
Equities
Debts
Mutual Funds
Chart: Market structure
The comparative market summary of Chittagong Stock Exchange (CSE) is given below from the year 2002 to 2008.
Table: Comparative Market Performance of CSE 2002-2008
30
SL No 1 2. 3. 4. 5. 6. 7. 8. 9.
Category No. of Securities Listed No. of trading days No. of securities traded Market Capitalization In million taka In US$ millions Total Turnover Value In million taka In US$ millions Turnover Volume (shares)
2002 185 287 163 60,468 1,020 13,581 230 586,846,683
2003 196 286 173 85,312 1,451 6,719 114 203,731,0 08
2004 198 271 185 215,011 3,435 14,808 236 332,534,611
2005 210 263 191 220,353 3,390 13,933 216 308,901,797
2006 213 231 202 267,501 3,992 16,530 247 330,662, 106
2007 227 237 217 613,175 9,017 52,328 770 652,254, 942
2008 238 238 177 807,875 11,632 100,747 1450 972,811
10. 11. 12. 13. 14.
Average Daily Turnover In million taka 47.32 23.49 54.64 52.98 71.56 221 423.3 In US$ millions 0.80 0.40 0.87 0.82 1.07 3.25 No. of companies declared 133 131 135 161 113 116 92 cash dividend Indices CSE All Share Price Index (CASPI) 1,416 1,643 3,598 3,379 3,724 7,657 8,692 CSE 30 Index 1232 1,516 3,466 3,159 3,342 6,935 7,566 CSCX -----------2,348 2,432 4,921 5,680 Market Cap. To GDP (%) 2.15 2.80 6.07 5.61 6.44 12.00 14.91 Market P/E ratio 6.47 8.50 18.65 15.67 14.31 22.83 19.00 Turnover ratio (%) 22.54 7.86 6.87 6.37 6.19 8.53 12.47 Dividend Yield (%) 7.08 6.29 3.23 4.35 4.25 2.00 2.61 Currency Conversion Rate 59.30 58.78 62.60 65.00 67.00 68.00 69.45 (1US$= taka) #All Share Price Index is calculated on weighted average method. The index base was 1000 for CSE from the year2000. (Source: Chittagong Stock Exchange Profile)
CHAPTER 4 Hypothesis testing Test of Randomness of the Changes in Share Prices
31
4.1. Test of Randomness of the Changes in share prices Random Walk theory: According to the random walk theory, prices of shares change randomly. It states that stock market prices evolve according to a random walk and thus the prices of the stock 32
market cannot be predicted. The study has examined the randomness of changes in share prices by applying run test for randomness. Accordingly, the study has selected 5 companies randomly. Ho: The changes in share prices are random. Ha: The changes in share prices are not random. The Ho has been tested at 5% level and the significance value of Z statistic is +/-1.96. Name of Company ACI Beximco Ltd. Delta Brac Housing Summit Power Peoples Insurance ui 49 40 36 42 16 ni 53 49 43 52 18 E(ui)=(ni+2)/2 Var(ui) Z=[ui-E(ui)]/var Ho=The Changes are random 27.5 12.99 +5.97 Rejected 25.5 11.99 +4.19 Rejected 22.5 10.49 +4.16 Rejected 27 12.75 +4.20 Rejected 10 4.24 +2.91 Rejected
Source: Chittagong Stock Exchange, Data compiled by researcher.
ui =Number of runs for ith company ni = Total trading days of the share of ith company Var (ui) = n/4[(n-2)/n-1)] From the table, it has been found that calculated value of Z does not fall into the accepted region of Z statistic +/- 1.96. So the null hypotheses in all five cases have been rejected. It can therefore be concluded that changes in share prices in CSE are not random.
33
CHAPTER 5 Findings from Interview
Fluctuations in share prices is a prime characteristic of underdeveloped stock markets. Bangladesh is no exception. The stock market of Bangladesh has to go a long way to be developed market. The CSE has been growing on different fronts year by year, but the growth in different parameters is still at low stage as compared to emerging to stock market in the world in general, and in Asia in 34
particular. This stage of development can be attributed to different issues. The study has identified some important causes responsible for fluctuations in share prices by conducting interview of personnel associated with stock market, DSE and CSE. The reasons include: Political instability Inadequate market regulation Inadequate disclosure of information High interest rates in money market Lack of supply of good shares Dormant listed members Lack of awareness of investors These are discussed below. Political Instability This is a common feature, influencing the stock market like other sectors of economy badly. This has caused a negative influence in number of trading days, sales volume, pricing of shares in the stock market and thereby making it inefficient. Inadequate market regulation CSE has its own policy guidelines for operation. Besides, SEC keeps on promulgating different laws and regulations for regulating the stock market and thereby establishing a congenial regulatory environment in the stock market. Stock market experienced debacle in 1996 for lack of regulatory control. Major share of respondents are of opinion that inadequate market regulation disrupts the smooth operation of stock market. Apart from this, researchers have taken a note of objection from good number of sample respondents that there has been some fraudulent acts and insider trading which might have contributed to the abnormal fluctuations in the prices of security. This calls for need based regulations to be regulated. Inadequate Disclosure of Financial Information
35
Respondents are of the opinion that investors do not get adequate stock market information for inadequate disclosure practice. It can be pointed out that SEC has obliged listed companies to prepare financial statement according to its guidelines, Companies Act 1994 and IAS-I, preparation of financial statement. Besides, it forces every listed company to get published semi-annual financial statement. By this time, SEC has come out with guidelines of corporate governance and made obligatory on the past of listed companies to introduce and publish. Higher interest rate in Money Market This is certainly encouraging investors to redirect their funds from stock market to money market. All banks other than the specialized ones, have slashed their lending rates in June, 2008. A the same time, private and foreign commercial banks have raised their deposit rates. This reduction in lending rates and increase in deposit rates have narrowed the interest rate spread.
Table: Lending and Deposit rates in different banks
Banks All banks State-owned banks Specialized banks Private banks Foreign banks
Lending rates 12.29% 9.41 9.78 13.51 13.79
Deposit rates 6.95% 4.93 6.58 8.42 5.25
Source: (CSE Portfolio, June, 2008)
Lack of supply of good shares Respondents are of the opinion that a large number of profitable enterprise-state-owned enterprises. MNCs private telecommunication companies are still outside the stock market. Listing of these shares would certainly increase the depth of stock market. The Multinational companies are doing business in Bangladesh without enlisting in securities market. It is not possible in developed countries. The MNCs are profitable companies. But they have no accountability and they are transferring profit to their own countries from Bangladesh. If they enlist on capital market, our nationals can get the share of profit. Very few MNCs are enlisted in securities market like Bata which enriched our securities market. Grameen Phone, Banglalink, Unilever etc. are successfully operating in our country. But after telling them several times by the Finance Minister, they did not enlist in securities market. Government should take the strong step to make them involved in security market. For this, our capital market will get the life.
36
Lack of awareness of investors Most of the investors in stock market are not professionally sound for non-existence of training institutes for HRD in this direction. Establishment of training institute for HRD in different level of securities industry has become inevitable. This is because most investors in stock market are first generation investors. As a result, they suffer a serious financial loss from any setback I n stock market. The majority people of Bangladesh do not have the knowledge about securities market. They do not know the rules and regulations of investment in capital market. Two stock exchanges are located in Dhaka and Chittagong. So, the people of other areas of the country deprived of the facilities of trading in stock exchanges. The communication system should be developed so that the people of every corner of the country can invest in security market. The awareness has to develop through seminar, publicity in media. The knowledge of securities market should be thought in secondary and higher secondary level of education.
37
CHAPTER: 6 Performance Analysis of Chittagong Stock Exchange (CSE)
Part I Part II
6.1. Performance Analysis of Chittagong Stock Exchange (CSE)-Part I CSE has been performing different investment related jobs and undertaking and implementing different programs in order to accomplish its objectives. Before evaluating the market performance of CSE, we need to overview CSE operations from a few perspectives. The performances of CSE have been judged on different parameters such as number of listed companies, number of listed securities, volume of trade, market capitalization, market share of different sectors and sector wise performance. 38
6.1.1. Listing of companies and securities and no. of securities traded On 1st day of trade (10th October, 1995) only 31 companies having 31 securities were listed with CSE. The market capital stood at USD 0.20 billion. At present, the listing scenarios have been found different. The chart shows that total number of listed companies reached 221 and listed securities have reached 238 at the end of 2008.Listed securities are composed of 221 equity stock, 16 mutual funds and 1 corporate bond. It also shows that CSE has registered growth in number of listed companies and growth in number of securities. CSE is expecting more number of companies to be listed either for making new public issues or for direct trading at present environment although historical growth rates appear to be relatively poor.
Table : The growth in listing of Companies and of securities and securities traded
Year 2002 2003 2004 2005 2006 2007 2008 Mean SD Skewness
Number of listed Companies 172 183 186 199 206 211 221
Growth rate (%) 7.5 6.4 1.64 6.99 2.51 2.43 4.74 4.6 2.42 -2.96
Number of Listed Securities 185 196 198 210 213 227 238
Growth rate (%) 4.52 5.95 1.02 6.06 1.43 6.57 4.85 4.34 2.25 -2.29
No. of securities traded 163 173 185 191 202 217 177
Growth rate(%) 5.84 6.13 6.94 3.24 5.76 7.42 -18.43 2.22 9.22 -1.15
Source: (CSE Profile, portfolio)
The number of companies reached 221 in the year 2008 showing a growth rate of 4.74%. The number of listed securities reached 238 with a growth rate of 4.85% in 2008. But there is declining trend in number of securities traded. In the year 2008, the number of securities traded was 40 less than that traded in 2007 which means many of the companys securities remained untraded.
20 5 20 0 10 5 10 0 5 0 0
N m e o C m a ie u br f o p n s N m e o s c ritie u br f e u s
20 02
20 03
20 04
20 05
20 06
20 07
20 08
Ya er
Chart: The growth in listing of companies and of securities
39
230 220 210 200 190 180 170 160 150

2002 2003 2004 2005 2006 2007 2008
Chart: The growth in number of securities traded
The securities listed at the end of the year 2008 comprised of 221 equity stock, 16 mutual funds and 1 corporate bond. The scenario detects that there is lack of tradable securities of different types. We need securities more in number and in types to attract investors to the market.
16
221
Chart: Composition of listed securities at the end of 2008.
6.1.2. The number of trading days in CSE The number of trading days in CSE has been declining. In the year 2002, trade took place in 287 days which decreased to 238 days in 2008. Due to various reasons including political instability this occurrence take place which is not positive for CSE. Uninterrupted trading is needed for a sound stock exchange and therefore secondary market traded.
Table: No of trading days
Year 2002 2003 2004
No. of trading days 287 286 271
Year 2005 2006 2007 2008
No. of trading days 263 231 237 238
40
300 290 280 270 260 250 240 230 220 2002
2003
2004
2005
2006
2007
2008
Chart: No. of trading days
6.1.3. Market Capitalization in the Economy Market capitalization is an indicator of economic development. The higher the amount of market capitalization, the better the performance of stock exchanges. Market capitalization is calculated as the closing price of the share on last date of reporting period multiplied by the number of shares outstanding at the year end. In terms of economic significance, the assumption behind market capitalization is that market size is positively correlated with the ability to mobilize capital and diversify risk on an economy wide basis. (Agarwal, 2001) The CSE market capitalization showed a huge growth in 2008. The share of CSE market capital in the total is also increasing. It has reached almost half of the total market capital in the year 2008. Another significant boost took place in the year 2004.
Table: Market capitalization in CSE, its growth and as a % of total (2002-2008)
Year 2002 2003 2004 2005 2006 2007 2008 Mean SD Skewness
Market Capitalization (in million taka) 60,468 85,312 215,011 220,353 267,501 613,175 807,875
Growth of Market Capitalization (%) 7.28 41.09 152.03 2.48 21.40 129.22 31.75 55 62.6 2.52
CSE MC as % of total capitalization 9.14 8.68 48.87 48.60 45.27 44.87 49.76
41
From the chart above it has been observed that market capitalization has a tendency to grow up over the passage of time. The highest growth in market capitalization was 152.03% in the year 2004. In the year 2008, the secondary market experienced a steady rate of growth.
900000 800000
(in million taka)
700000 600000 500000 400000 300000 200000 100000 0 2002 2003 2004 2005 2006 2007 2008
Y ear
Chart: Market capitalization in CSE

1.8 1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 0 -0.22002 2003 2004 2005 2006 2007 2008
Chart: Annual growth of market capitalization

2008 2007 2006 2005 2004 2003 2002 0 8.68 9.14 20 40 49.76 44.87 45.27 48.6 48.87 91.32 90.86 60 80 100 50.24 55.13 54.73 51.4 51.13 CSE MC DSE MC
Chart: CSE MC as a % of total Market capitalization
6.1.4. Turnover in CSE: The turnover in CSE showed an upward trend as it grew at a rate of 92.53% in 2008. Although there has been negative growth in three years under study, namely 2002, 42
2003 and 2005, the turnover at CSE could have maintained a steady rate of growth in the recent three years.
Table: Turnover in CSE (2002-2008)
Year 2002 2003 2004 2005 2006 2007 2008
Turnover (in million taka) 13,581 6,719 14,808 13,933 16,530 52,328 100,747
Annual Growth rate (% ) -9.17 -50.53 120.39 -5.91 18.64 216.56 92.53
120000 100000 (in milion taka) 80000 60000 40000 20000 0 2002 2003 2004 2005 2006 2007 2008
Year
Chart: Total Turnover value over the years
6.1.5. The Number of companies declared cash dividend: The dividend was paid by 149 listed companies in 2007 and 169 in 2008.
Table: No. of companies declared cash dividend
Year 2002 2003 2004 2005 2006 2007 2008
No. of companies declared cash dividend 133 131 135 161 113 149 169
Growth rate (%) 2.3 -1.50 3.05 19.26 -29.81 31.86 13.43
43
180 160 140 120 100 80 60 40 20 0 2002 2003 2004 2005 2006 2007 2008
Year
Chart: No. of companies declared cash dividend
6.1.6. Market P/E ratio and Dividend Yield: The P/E ratio depicts the relationship between market's valuation of a company's shares and the wealth the company. The ratio stays the same if price and earnings increase or decrease by the same margin. If the ratio fluctuates markedly, or stays at a higher or lower than normal, we can argue that recent company performances are no longer the main factor in pricing of a share at the marketplace. Generally, a higher P/E means the company has the potential to improve its fundamentals so that investors may be willing to pay a large multiple of its current earnings to buy the stock. However, from the viewpoint of an investor, a higher P/E is risky because there is possibility that current price does not reflect the companys fundamentals, rather, non-fundamental factors may support the price rise and hence price may go down substantially in the future. P/E ratios are higher for firms or sectors as a whole with higher growth prospects. The market P/E ratio reached 19% in the year 2008 which was 22.83% in 2007.The cash dividend yield was 2.00 in 2007 which reached to 2.61 in 2008 by showing an increase of 30.50%.
Table: Market P/E ratio and dividend Yield (%)
Year 2002 2003 2004 2005 2006 2007 2008 Market P/E Ratio 6.47 8.5 18.65 15.76 14.31 22.83 19
Growth rate (%) 7.80 31.37 119.41 -15.49 -9.20 59.54 -16.77
Dividend Yield (%) 7.08 6.29 3.23 4.35 4.25 2.00 2.61
Growth rate (%) 8.92 11.16 -48.65 34.67 -2.29 -52.94 30.50
44
25
20
15
%
10 5 0 2002
2003
2004
2005
2006
2007
2008
Y ear
Chart: Market P/E Ratio
8 7 6 5 D id n Y ld iv e d ie (% ) 4 3 2 1 0 20 02 20 03 20 04 20 05 20 06 20 07 20 08 3 3 .2 2 1 .6 2 4 5 .3 4 5 .2 7 8 .0 6 9 .2
Ya er
Chart: Dividend Yield (%)
6.1.7. CSE Indexes: The value of CSE indices are shown below. CSE indexes include CASPI (CSE All Share Price Index), CSE-30 and CSCX (CSE Selective Categories Index).
Table: CSE Indexes; CASPI, CSE-30, CSCX
Year 2002 2003 2004 2005 2006 2007 2008
CASPI 1416 1643 3598 3379 3724 7657 8692
CSE-30 1232 1516 3466 3159 3342 6935 7566
CSCX 0 0 0 2348 2432 4921 5680
45
10000 9000 8000 7000 6000 5000 4000 3000 2000 1000 0 2002 2003 2004 2005 2006 2007 2008 CASPI CSE-30 CSCX
Year
Chart: CASPI, CSE-30 and CSCX
6.1.8. Category wise share of transaction and market capital in CSE: We know that there are 5 categories to which all the listed companies belong according to set criteria. At the end of year 2008, the share of different categories in transaction, market capital and paid-up capital are shown below.
Table: Category wise transaction and market capital in 2008
Category A B N Z
Share in total transaction (%) 70.88 0.30 25.36 3.45
Share in total paid up capital (%) 67.40 3.82 14.66 14.12
Share in total market capital (%) 80.04 1.02 8.82 10.11
Source: CSE Bazar Porikroma
It is found that the category A share plays the major role in respect of transaction, paid-up capital, and market capital. 46
6.1.9. a) The top ten companies in transaction: The list of top ten companies who achieved highest position in terms of trade in December 2008 are given below.
Table: Top ten companies in transaction in December, 2008.
Name of Company Beximco Pharma Beximco Summit Power Shinepukur Ceramics ACI Formulations Titas Gas Grameen One: Scheme Two Citi Bank AB Bank Lankabangla Finance Total
Amount (in million taka) 593.2 575.2 295.8 292.8 217.4 206.5 201.0 119.5 115.9 110.8 2728.1
Percentage of total transaction (%) 12.67 12.29 6.32 6.26 4.65 4.41 4.3 2.55 2.48 2.37 58.3
6.1.9. b) The top ten companies: share price increased in December 2008: The table below shows the companies whose share price got momentum in December 2008.
Table: Top ten companies in terms of rising share prices in December, 2008
Name of Company
Market Price 30/11/08 (taka) per share 583.25 60.00 112.30 50.20 60.40 126.90 16.50 608.25 114.25 32.20
Market Price 31/12/08 (taka) per share 963.00 91.25 167.90 74.80 88.60 185.30 23.80 877.00 163.25 45.60
Monthly Change (%) 65.11 52.08 49.51 49.00 46.69 46.02 44.24 44.18 42.89 41.61
Summit Power JMI Bangla Beximco Pharma Bangladesh Online Shinepukur Ceramics Beximco Bextex Summit Alliance Port Beximco Synthetics Quasem Drycells
6.1.9. c) The top ten companies: share price decreased in December 2008:
Table: Top ten companies in terms of fall in share price in December 2008.
Name of Company
Market Price 30/11/08 (taka share) 1,400.00
Market Price 31/12/08
Monthly Change (%) -46.43 47
per (taka per share) 750.00
National Polymar
Social Investment Bank Eastern Bank BCIL BD Luggage Saiham Textile Mills Aftab Auto Rupali Insurance Wonderland Toys Phoenix Insurance
321.25 770.50 39.50 22.00 120.00 412.50 670.00 43.50 417.75
213.00 592.00 31.75 17.75 100.00 350.75 570.00 37.25 360.50
-33.70 -23.17 -19.62 -19.32 -16.67 -14.97 -14.93 -14.37 -13.70
6.1.10. Region wise CSE members activity: 2008 The activity of CSE members is depicted below. From the pie chart, we find that members of Dhaka and Chittagong are ahead of other members in trading which indicates that members from other region are not so active.
Table: Region wise activity of CSE members
Region Chittagong Dhaka Sylhet Rajshahi
Activity 49.90% 35.11% 13.89% 0.45%
Region Khulna Barisal Jessore Narayanganj
Activity 0.21% 0.36% 0.01% 0.06%
0.45% 0.21 % 1 3.89% 0.36% 0.01 % 0.06% 35.1 % 1
Sylhet Rajshahi Khulna Barisal Jessore Narayanganj Chittagong Dhaka
49.90%
Chart: Region wise activity of CSE members
48
6.2. Performance Analysis of Chittagong Stock Exchange (CSE)-Part II It is necessary to analyze the liquidity and efficiency condition of CSE to unravel the causes for fluctuations in share prices. 6.2.1. Liquidity and Efficiency The ability of the market to buy or sell securities is termed as liquidity. According to (Agarwal, R, N, 2000) two measures are generally used to measure liquidity. They are turnover (total value traded) in the stock market as a ratio of: (i) (ii) GDP; and Stock market capitalization.
The second measure is also called turnover ratio. High turnover ratio is associated with low transaction cost. It also denotes the degree of activity on a stock market. Thus, a small but active stock market has a small size but a high turnover ratio. (Agarwal, R, N, 2000) Turnover equals the value of total shares traded divided by market capitalization. High turnover is often used as an indicator of high level of liquidity. Turnover also complements total value traded ratio. While total value traded /GDP captures trading compared with the size of the economy, turnover measures trading relative to the size of the stock market. Put it differently, a small, liquid market will have a high turnover ratio but a small total value traded/GDP ratio The turnover ratio gives the total value of shares traded in relation to the size of the market.
Table: Turnover and GDP
Year
Turnover (in million taka) 2002 13,581 2003 6,719 2004 14,808 2005 13,933 2006 16,530 2007 52,328 2008 100,747 Descriptive Statistics
Annual Growth (%) -9.17 -50.53 120.39 -5.90 18.64 216.56 92.53
As a % of GDP 0.49 0.22 0.44 0.37 0.39 1.11 1.86 49
Mean SD Coefficient of Skewness Minimum Maximum

Source: CSE Portfolio
54.64 93 1.95 -50.53 216.56
0.69 0.5862 33.72 0.22 1.86
Turnover/GDP equals total value of shares traded on the stock market divided by GDP. The total value traded ratio measures the organized trading of equities as a share of national output .The total value traded/GDP ratio complements the market capitalization ratio. Together, market capitalization and total value traded/GDP inform us about market size and liquidity. Table shows the liquidity situation of Bangladesh stock market in terms of total value traded to GDP ratio. The ratio has increased form an insignificant number (0.49) in 2002 to 1.86 % in 2008. Mean value of 0.69 with a standard deviation of 0.5862 for the ratio imply that the increase is not even smooth; there is a marked fluctuation in the value traded to GDP ratio over the years.
Table: Market capitalization and Turnover
Year
Market Capitalization(i n million taka) 60,468 85,312 215,011 220,353 267,501 613,175 807,875
Turnover (in million taka) 13,581 6,719 14,808 13,933 16,530 52,328 100,747 10.10 5.85 1.94
Ratio of Turnover to Market Capitalization 22.46 7.88 6.89 6.32 6.18 8.53 12.47
2002 2003 2004 2005 2006 2007 2008 Mean SD Coefficient of Skewness
Source: CSE Portfolio Chart: CSE market performance: Turnover and market capital
50
900 000 800 000 700 000 Mn. taka 600 000 500 000 400 000 300 000 200 000 100 000 0 20 02 20 03 20 04 20 05 20 06 20 07 20 08 Mrk t c p l a e a ita T rn v r u oe
Ya er
It has been found that volatility in turnover across the periods understudy is a regular feature. The growth in sales is found to be inconsistent. The ratio of turnover to market capitalization has a updown tendency over the periods. The turnover ratio has been very low.
Table: Correlation between Turnover and market capital
Year 2002 2003 2004 2005 2006 2007 2008 Correlation coefficient
Turnover (in million taka) 13,581 6,719 14,808 13,933 16,530 52,328 100,747
Growth rate (%) -9.17 -50.53 120.39 -5.90 18.64 216.56 92.53
Market Capitalization (in million taka) 60,468 85,312 215,011 220,353 267,501 613,175 807,875 0.49
Growth Rate (%) 7.28 41.09 152.03 2.48 21.40 129.22 31.75
From the chart above it has been observed that market capitalization has a tendency to grow up over the passage of time. The highest growth in market capitalization was 152.03% in the year 2004.Besides the correlation between market capitalization and turnover is 0.49 which is found positive but insignificant. The results lead to a small product and a low level of market activity. 6.2.2. Stock Market Size The market capitalization ratio is generally taken as a measure of stock market size. (This is measured as a ratio of market value of stocks which are listed on a stock market to GDP.) Alternatively, size is measured by the number of listed companies on a stock market.
Table: Market Capitalization as a % of GDP
Year 2002
Market Capitalization (million tk) 60,468
GDP (million tk) 2,732,010
Market Capitalization to GDP (%) 2.15 51
2003 2004 2005 2006 2007 2008 Mean SD Coefficient of Skewness

P=Projected
85,312 215,011 220,353 267,501 612,479 807,875
3,005,800 3,329,730 3,707,070 4,157,280 4,724,770 5,419,190p 7.14 4.68 0.98
2.8 6.07 5.61 6.44 12.00 14.91
Source: CSE Bazar Porikroma and Portfolio
The table indicates that share of market capitalization to GDP has been increasing across the period under study. Although it appears to be low; it indicates the growth potentially of market capitalization. Positive growth in market capitalization as well as the ratio of market capitalization to GDP indicate the better performance of CSE. La porter et al (1997,1998) and Levine and Zervos (1998) used the market capitalization to GDP ratio as an indicator of market development. Stock market can perform to the satisfactory level if degrees of confidence of both investors and market operators are very high. Their level of confidence can be judged with the ratio of turnover to sales.
Table: Growth of Secondary market at a glance
Financial Year 2002 2003 2004 2005 2006 2007 2008
No.
of
Listed MCAP/GDP
Turnover /GDP
Turnover ratio
Companies 172 183 186 199 206 211 221 2.15 2.8 6.07 5.61 6.44 12.00 14.91 0.49 0.22 0.44 0.37 0.39 1.11 1.86 22.46 7.88 6.89 6.32 6.18 8.53 12.47
Table: CSE market performance: MC, Turnover and indexes
Year 2002 2003 2004
MC 60,468 85,312 215,011
Turnover 13,581 6,719 14,808
CASPI 1416 1643 3598
CSE-30 1232 1516 3466
CSEX 0 0 0 52
2005 2006 2007 2008
220,353 267,501 612,479 807,875
13,933 16,530 52,328 100,747
3379 3724 7657 8692
3159 3342 6935 7566
2348 2432 4921 5680
900000 800000 700000 600000 500000 400000 300000 200000 100000 0 2002 2003 2004 2005 2006 2007 2008
8000 7000 6000 5000 4000 3000 2000 1000 0
MC Turnover CSE-30 CSEX
Chart: Market capitalization, Turnover and CSE Indexes
900000 800000 700000 600000 500000 400000 300000 200000 100000 0 2002 2003 2004 2005 2006 2007 2008
10000 9000 8000 7000 6000 5000 4000 3000 2000 1000 0 MC Turnover CASPI
Chart: Trend in CASPI, Market capitalization and Turnover
6.2.3. Market concentration It can be measured by looking at the share of market capitalization accounted for by the large stocks or large sectors. These large stocks are seen as the leading 3 to 5 firms in the market (Maunder et al. 53
1991). In many economies only a few companies dominate the stock market (Bundoo 1999). High concentration is not desirable as it can adversely affect liquidity, and it is common to find a negative correlation between concentration and liquidity. To measure the degree of market concentration, we compute the share of market capitalization by largest 5 sectors and by the largest sectors, turnover by the largest 4 sectors and by the largest sector. Sector-Wise Financial Performance of CSE CSE has segmented the whole economy of the country into 17 sectors. The stock market is dominated by financial service sector (80 companies), followed by textile & clothing, Pharmaceuticals & Chemicals, Food and allied, cement etc. It is observed that economically important sectors like energy, ICT State owned enterprises, Private telecommunication; utility sectors etc. have least exposure to the stock market. The participation of different sectors in various aspects in the year 2008 are depicted below.
Table: Share of different sectors in the Chittagomg Stock Exchange, 2008
Sectors
Insurance Textile Pharma Chemical Food and allied Cement Engineering Leather Service Paper & printing Energy Mutual Funds Banking Ceramics ICT Leasing and Finance Miscellaneous Corporate Bond
No. of companies 32 25 & 18 20 8 17 6 4 5 8 16 29 5 7 18 12 1
% of MC 5.05 1.90 10.62 0.44 4.85 1.74 1.08 0.76 0.15 14.53 1.94 43.14 0.86 0.59 8.15 3.85 0.34
Turnover Value (%) 2.3 3.83 15.11 0.74 2.79 3.51 1.34 1.75 0.24 15.84 10.27 23.14 0.35 2.94 8.03 7.13 0.68
P/E Ratio 18.71 17.54 26.14 29.62 10.39 32.72 16.40 14.58 18.59 15.86 68.38 18.22 60.70 45.88 20.77 25.74 ----------
Div Yield/DPS 0.45 2.33 1.44 1.70 0.63 1.53 4.54 1.63 2.52 1.18 0.71 0.26 0.45 0.00 0.85 1.74 --------
Index 8761 2186.88 13143.16 1602.75 2722.39 2416.16 2668.79 2088.95 1057.63 6349.23 12099.76 30367.56 1055.89 5694.12 12040.41 3523.52 ------------
Source: Portfolio, Chittagong Stock Exchange
The above table shows the exposures of different economic sectors to stock market with respect to parameters such as shares of market capitalization, share of sales value, P/E ratio, dividend and Index. Financial services sector that includes insurance, Banking, Mutual Fund, and Leasing & 54
Finance constitutes a lion part (58.28%) of market capitalization. It has also been found that financial sector has about 43.74% contribution to sales. This implies that the economic sectors other than financial sector are to be brought into the spectrum of stock market through different policy and regulatory programs.
05 .9 08 .6
81 .5
38 .5
03 .4
50 .5
1 . 9
1. 2 06
04 .4 48 .5 14 . 7
18 . 0 4 .4 31 14 . 9 1. 3 45 07 .6 01 .5
Chart: Sector-wise market capital, 2008

T rn v r V lu (% u oe a e )
In ra ce su n T xtile e P a a &C e ica h rm hm l F o a da d o d n llie
80 % .3 29 % .4 03 % .5 06 % .8 71% .3 23 % .0 38 % .3 1. 1 51 % 07 % .4 27 % .9
C mn e et E g e rin n in e g La e e th r S rvice e P p r &p tin ae rin g Ee y n rg M tu l F n s u a ud B n in ak g C ra ics e m IC T L a g a d F a ce e sin n in n M lla e u isce n o s C rp ra B n o o te o d
2 .4 31% 1. 7 02 % 1.8 % 5 4
35% .1 14 . % 3 15 . % 7 02 % .4
Chart: sector wise turnover, 2008 Table: Market Capitalization by different sectors
Sectors Insurance Textile Pharma & 2006 3.08 3.20 9.98
% of MC 2007 3.38 2.07 8.74 2008 5.05 1.90 10.62 55
Chemical Food and allied Cement Engineering Leather Service Paper & printing Energy Mutual Funds Banking Ceramics ICT Leasing and Finance Miscellaneous Corporate bond
0.58 10.15 1.68 0.90 0.57 0.22 8.37 0.55 52.70 0.20 0.67 4.03 3.09 ------
0.37 6.01 1.45 0.91 0.27 0.17 10.28 0.84 56.94 0.11 0.44 4.65 2.67 0.70
0.44 4.85 1.74 1.08 0.76 0.15 14.53 1.94 43.14 0.86 0.59 8.15 3.85 0.34
Source: Portfolio, Chittagong Stock Exchange Table: Share of Market Capitalization (%)
2006 2007 2008
Banking 52.7 56.94 43.14
Other 4 largest sectors 32.53 29.68 38.15
Total 85.23 86.62 81.29
100 90 80 70 % of market 60 Capitalization 50 (million taka) 40 30 20 10 0
32.53
29.68 38.15
52.7
56.94
43.14
2006
2007 Year
2008
Chart: Market capitalization by largest five sectors (2006-2008)
The chart indicates increasing market concentration by largest five sectors in Chittagong Stock Exchange. Market capitalization for largest five sectors in 2006 was 85.23 % which decreased to 81.29 % by 2008.
56
It is evident that the market is highly concentrated by the financial services sector specially banking and this domination is expressed in grabbing more than 50% of total market capital by the respective sector.
Table: Dominance of Financial Services sector in respect of Market capitalization
Year 2006 2007 2008
Financial Services Sector (%) 60.36 65.81 58.28
Other Sectors (%) 39.64 34.19 41.72
% of Market Capitalization (million taka)
100 90 80 70 60 50 40 30 20 10 0 2006 2007 2008 Financial Services Sector (%) O ther sectors(%)
Year
Chart: Dominance of Financial Services sector in respect of Market capitalization
Turnover by the largest 5 sectors decreased from 83.59 % in 2006 to 72.02 % in 2008 whereas, the turnover by the banking sector decreased form 46.88 % in 2006 to 19.84% in 2008. Overall, the Bangladesh stock market remains highly concentrated to the banking sector in terms of market capitalization and turnover.
Table: Market Concentration: turnover by largest 4 sectors and largest sector in the CSE.
Concentration measures Turn over by the largest 5 sectors (%) Turnover by the largest sector (% )
2006 83.59 46.88
2007 78.78 50.41
2008 72.02 19.84
57
6.2.4. Volatility in Stock market performance: i) Indexes Stock index is a parameter for judging stock market performance. It reflects the changes in prices of securities as well as value of securities. CSE determines three stock indices-CSE All Share Price Index, CSE-30 Index, CSCX Index.
Table: The quarterly changes in CSE All Share Price Index: 2008
Index CSE All Share Price Index Growth rate (%) Mean SD Range Coefficient of Variation Maximum Minimum
Quarter 1 Quarter 2 Quarter 3 Quarter 4 8329.01 9050.56 8996.69 8692.7457 8.77 8.66 -0.59 -3.37 8767.25 332 721.55 .038 9050.56 8329.01
Source: Portfolio, Chittagong Stock Exchange Table: The changes in CSE-30: 2008
Index CSE-30 Growth Rate (%) Mean SD Range Coefficient of Variation Maximum Minimum
Quarter 1 Quarter 2 Quarter 3 7120.05 8037.02 7862.52 2.66 12.88 -2.17 7646.63 401 916.97 0.052 8037.02 7120.05
Quarter 4 7566.9466 -3.76
Source: Portfolio, Chittagong Stock Exchange Table: The changes in CSCX: 2008
Index CSCX Growth Rate (%) Mean SD Range Coefficient of Variation Maximum Minimum
Quarter 1 Quarter 2 Quarter 3 Quarter 4 5380.16 5853.58 5892.71 5680.5869 9.32 8.79 0.668 -3.6 5701.76 233.37 512.55 0.041 5892.71 5380.16 58
From the above table, it has been found that stock index has changed quarterly at varying degrees, including ups and downs in share prices and securities over the periods. The changes in stock index over the period have been found inconsistent. This implies that market return has changed abnormally, indicating the inefficiency of Chittagong Stock Exchange. ii) Fluctuations in share prices in CSE: The analysis shows that the stock market volatility changes significantly over time. The volatility of stock return is determined by the fluctuations in stock index. Fluctuations in the stock index also depends on the demand for and supply of securities traded in the stock exchange. Sometimes the stock return volatility is driven by trading volume following new information and by the process that incorporates new information into market prices. At the aggregate level, stock return volatility rises sharply during stock price declines following bad news than in periods of stock price increase following good news. While relating changes in stock market volatility with a number of economic factors, such as financial leverage, corporate bond yields, corporate earnings and dividend yields, stock trading activity, volatility of interest rates, bond prices and other macroeconomic variables, Schewert (1987) concludes that none of these factors.plays a dominant role in explaining the behavior of stock volatility over time. Variances in share prices of some selected companies The share prices are volatile. The degree of volatility differs from security to security depending upon financial performance of concerned company as well as stock market environment. The study has determined variances and coefficient of variances in share prices of companies, selected randomly from different sectors.
Table: Comparative Statistics of 5 randomly chosen companies
Name of Group Company
Issued Share (000) 16170 3510 1500 54884.
Market Earning Book lot/stated per Value per price share share/NAV (taka) 50/10 50/100 10/100 100/10 19.36 72 128.67 1.53 60.33 100 197.27 15.98
DPS
P/E ratio
ACI Delta Brac Housing Peoples Insurance Beximco
A A A A
8.5 0.00 10.0 0 0.00
26.73 18.75 5.04 121.1
Dividend Market Yield Capital (in million taka) 1.64 8368.0 ---4738.5 1.54 ---972.0 10170.2 59
Ltd. Summit Power
9 18532. 8
50/100
30.90
129.50
0.00
1 31.17
----
17847.1
Source: Bazar Porikroma, Chittagong Stock Exchange Table: Price Changes in 5 randomly chosen companies
Name of Company ACI Delta Brac Housing Peoples Insurance Beximco Ltd. Summit Power
Highest Market Price (taka) 660.00 2100.00 1375.00 253.00 1695.00
Lowest Market Price (Taka) 160.00 999.00 392.00 34.30 526.50
Range
Mean (Stated Price) 410 1549.5 883.5 143.65 1110.75
Standard Deviation 353.55 778.5 695.08 154.64 826.25
Coefficient of Variation 0.86 0.50 0.78 1.07 0.74
500 1101 983 218.70 1168.50
The table shows coefficient of variation in share prices for 5 randomly selected companies. Among these Beximco Ltd. shows the highest value for coefficient of variation and therefore is much riskier than the others. There is possibility that the share price of Beximco Ltd. will fluctuate more than the rest. ACI is in the second position while Peoples Insurance and Summit Power are just after it. The less riskier among the five is Delta Brac Housing with coefficient of variation value of 0.5. The possibility of its share price fluctuation is much less among the selected ones.
60
CHAPTER: 7 Summary of the study and findings:
61
Summary of the Study and Findings: The study has been conducted aiming at identifying the causes of share price fluctuation by evaluating performance of CSE. It has employed different statistical and financial techniques in analyzing data, collected from both primary and secondary sources. The findings of the study have been summed up as follows: 1. CSE has been growing on all fronts such as number of securities, number of listed companies, market capitalization, sales volume, financial disclosure, matured investors etc. But the performance in most of the cases like products, market capitalization to GDP, sales to market capitalization, financial indicators are not comparable to those in other developed stock markets in Asia as well as in the world. The turnover ratio has been very low. Market capitalization shows increasing trend but could not reach a satisfactory level in terms of share to GDP. The stock market size is small and activity of CSE members are concentrated on Metropolitan areas like Chittagong, Dhaka and Sylhet. 2. Participation of all economic sectors into stock market has been found inconsistent in number. Financial service sector is dominating the stock market. Different economically important sectors are still outside the stock market. It was found that the financial services sector has grabbed a huge part of market turnover and market capital whereas the other important sectors like energy or ICT are not able to play their respective role in the secondary market. 3. Financial performances of Banks, Insurance, Mutual Fund, Engineering in terms of EPS, P/E ratio, and DPS, market capitalization and sales have been found out and not satisfactory. 4. Changes in share prices of securities enlisted with CSE are not random. Stock index of CSE changes due to causes not directly related to the stock market. Random walk theory is not supported by the movement of stock price index in CSE. It has been found that growth in all the three indices was negative in last one or two quarter of last year. Moreover, the price of the shares fluctuates to a huge amount, in either direction than the stated price as reflected in the analysis of 5 randomly selected companies. 62
5. In Bangladesh, the inadequate supply of securities is a major constraint to the development of a capital market. As on December 2008, the number of listed securities was 221, however, about 72 percent of the turnover is represented by largest 5 sectors. This implies that the supply of securities is dominated by a few entrepreneurs. This has been due to lack of supply of securities by other public limited companies. Inadequate supply of good quality securities is another major impediment to the development of securities market. 6. It has been complained by many investors that true information on the performance of companies selling shares are hard to get. Transaction costs can be quiet high. Some restrictions on foreign investment may apply. However, the trend is toward rapid deregulation and liberalization.
63
Chapter 8: Policy Implication : Recommendations
64
Policy Implication: Recommendations In view of the foregoing analysis of findings of the study, the following suggestions have been put forwarded for consideration of Government, policy makers, SEC, stock exchanges and other concerned parties in order to develop the performance of stock market, especially of CSE. a) SEC along with stock exchanges should make a provision to compel every member of stock exchange either to trade or to give-up membership of exchanges. Besides, regulation is warranted for checking the fraudulent activities of stock exchange. b) Government should promulgate macro-economic policy such as fixation of interest on treasury securities considering the interest of stock market of the country. Besides, it should come out with policy for bringing profitable SOEs, and MNCs into the net of stock market. c) SEC in corporation with CSE and DSE should establish a training institute for research and development of human resources in the different level of security industry. This will help improve the awareness of investors. d) SEC should come out with full-fledged guidelines for introducing corporate governance to listed companies. This may improve not only financial disclosure practice; but also stock market operation of the country. e) Listed companies should disclose financial information through different vehicles such as newspapers, websites, report form etc. This will give investors easy accessibility to the information. f) Supply of securities can be increased enormously if all profitable public and government owned companies float shares. g) The management of stock exchanges should be separated from ownership in order to avoid unethical transaction. The SEC should enact regulations to require that the executive head of every stock exchange be a paid full time non-member executive. The board of a stock exchange should be broad based and well represented. Foreign auditing company should be hired in order to properly audit the balance sheet and income statements of the companies selling shares. h) The development of a National Market System (NMS) can be suggested because it is expected to provide greater efficiency, competition, and lower cost of transactions. Four major characteristics of NMS are (1) centralized reporting of all transactions, (2) centralized quoting system, (3) centralized limit-order book, and (4) competition among all qualified market makers.
65
66
Chapter 9: Conclusion
67
Conclusion The investment activities often allied with risk is important for increasing productivity and economic development of a country. This requires cooperation in stimulatory, supporting and sustaining activities. Hence a favorable environment needs to be created by the government, nongovernment, and incubator organizations to develop entrepreneurs. Fluctuations in share prices are common phenomena in the equity market. Individual stock price undergoes ups and downs which is a regular feature of an efficient stock market. In the absence of price fluctuations, potential investors lose interest to participate in the stock market. However, careful monitoring of fluctuations by the concerned authority is needed in CSE which is yet to achieve maturity especially when price fluctuates irrationally high in the market. If necessary, there should be effective intervention when the market experiences excess volatility. Development of securities market is a precondition of the government's strategy to develop the economy through private sector. A strong securities market mobilizes internal and external resources for faster economic growth, ensures efficient allocation of resources and eventually generates economic development. Diversification of portfolio and large supply of securities are required to attain depth and breadth of the market. CSE has been found to play a pioneering role in boosting the confidence of all participants including investors. It has implemented different revolutionary programs for developing a congenial regulatory and administrative environment in its operation. Of course, it has exerted influence in the entire stock market of the country. The study has identified different impediments to development of stock market; and also suggested some policy measures for improvement of the operational efficiency of CSE. The suggestions are expected to develop the stock market of the country as well.
68
Appendix A
Z score calculation: Price Charts for 5 randomly selected companies.
69
70
Appendix B
List of tables: Table: DSE and CSE activities in last three fiscal years End June DSE FY06 FY07 FY08 FY06 i. No. of listed securities* 303 325 378 213 Particulars
CSE FY07
FY08 2 231 1 9 102.2 776.1 80.2 0.74 9050.6
ii. Issued equity and debt* (billion Taka) iii. Market capitalization (billion Taka) iv. Turnover in value (billion Taka) v. Turnover in volume (no. in billion) vi. All-share price Index
85.7 225.3 46.0 0.6 1339.5
164.3 491.7 164.7 2.0 1764.2
284.4 964.8 543.3 3.8 2588.0
63.8 195.6 11.4 0.25 2879.2
219 81.0 398.5 34.2 0.59 5194.8
* Including companies, mutual funds and debentures. Source: (Bangladesh Bank, Annual Report 2007-08).
Year Listed Securities All Share Price Index Market Capital(bn tk) Turnover (mn tk) DSE General Index DSE-20 Index(DS 20) Market Cap to GDP Ratio
2004 256 224.16 53181.17 1971.31 2158.66 6.73
Table: DSE statistics 2005 2006 286 310 1275.05 1321.39 228.57 64863.64 1677.35 1608.63 6.17 315.45 65079.12 1609.51 1406.35 7.59
2007 350 2535.96 742.20 322867.07 3017.21 2485.87 15.88
2008 412 2309.35 1043.80 667964.82 2795.34 2328.71 19.26
Source: Dhaka Stock Exchange
71
Table: Comparative Statistics of DSE and CSE DSE As on 30th sept 2008 Total number of listed securities No. of companies No. of mutual funds No. of corporate bonds No. of debentures No. of treasury bond Total No. of Tradable securities No. of shares of all listed companies No. of certificates of all listed mutual funds No. of debentures of all listed debentures No. of all listed govt. T-bonds No. of all listed corporate bonds Total issued capital of all listed companies Issued capital of all companies Issued capital of all mutual funds Issued debentures Issued govt. T- bonds Issued capital of corporate bonds Total Market capitalization All Share Price Index 400 272 16 1 8 103 2602 2271 325 0.41 2210 3000 349621 121463 3116 140 221903 3000 1068275 2498.45
CSE As on 30th sept 2008 234 217 16 1 2461.69 2133.21 325.28 3.000 119446.50 113331 3115.30 3000 819898 8996.69
Table: FIVE YEARS INDEX & MARKET SUMMERY OF CSE 2001 2002 2003 2004 2005 Annual Turnover (Mn. Tk.) Market Days Daily Average Turnover (Mn Tk.) Securities Traded Trades(No.) Number of new Listings Securities Listed Market Capital (Mn. Tk.) CSE All Share Price Index 14,953 268 55.79 593,754,41 0 839,123 12 177 56,364 1352.39 13,580.84 287 47.33 586,846,68 3 691,001 10 185 60,468 1415.92 1232.40 133 16 6,719.40 286 23.49 203,731,00 8 258,686 11 196 85,312 1642.79 1515.93 131 16 14,807.40 271 14,045.12 263
54.64 53.39 332,534,61 310,319,542 1 550,729 669,991 9 198 215,011 3597.70 3463.76 135 39 14 210 219,942 3378.67 3159.54 118 52
CSE-30 Index 1240.05 No. of Companies Declared Dividend 112 No. of Companies Issued Bonus Shares 7
72
Table: CSE Operational Statistics January-March 2008 * Index and Market Capitalization of the last trading day of the months have been considered as relevant figures of respective months. Trading All Share Market No. of Turnover of Traded amount Month Price Index Capitalization trading securities in in million In Million days Million (No.) Monthly Daily Monthly Daily Averag Average e January 7454.9100 Tk.629,615 22 46.93 2.13 US$ 9,180.77 Tk.4,998.04 Tk 227.18 US$ 72.88 US$ 3.31 February March Total 7536.9300 8329.0100 Tk 639,445 US$ 9,324.07 Tk. 706,904 US$ 10,307.73 19 21 62 60.53 84.29 191.75 3.19 4.01 3.09 Tk 6954.37 US$ 101.40 Tk. 9014.51 US$ 131.44 TK. 20,966.9 US$ 305.73 Tk 366.02 US$ 5.34 Tk.429.26 US$ 6.26 Tk.338.18 US$ 4.93
Table: CSE Operational Statistics April-May 2008 * Index and Market Capitalization of the last trading day of the months have been considered as relevant figures of respective months Trading All Share Market No. of Turnover of Traded amount in Month Price Index Capitalization Trading securities in million In Million days Million (No.) Monthly Daily Monthly Daily Averag Average e April 8655.77 Tk. 7,42702 21 103.92 4.95 Tk.10,494.37 Tk 499.73 US$ 10,837.62 US$ 153.13 US$ 7.29 May June Total 9101.56 9050.56 Tk 784,039 US$ 11,440.81 Tk 777,743 US$ 11,348.94 19 22 62 67.89 93.61 265.42 3.97 4.26 4.28 Tk 7,859.21 US$ 114.68 Tk 10,347.63 US$ 150.99 Tk 28,701.21 US$ 418.81 Tk 413.64 US$ 6.03 Tk 470.35 US$ 6.86 Tk462.92 US$ 6.75
73
Table: CSE Operational Statistics July-September 2008 * Index and Market Capitalization of the last trading day of the months have been considered as relevant figures of respective months. Trading All Share Market No. of Turnover of Traded amount in Month Price Index Capitalization Trading securities in million In Million days Million (No.) Monthly Daily Monthly Daily Averag Average e July 8593.93 Tk. 766618 22 104.72 4.76 Tk Tk 435.01 9570.12 US$ 6.35 US$11188.23 US$ 139.67 August 8676.33 Tk.773512 US$ 11288.04 19 56.86 2.99 Tk 6607.94 US$ 96.44 Tk. 9091.46 US$ 132.68 TK. 25269.5 2 US$ 368.79 Tk 347.79 US$ 5.07
September
8996.6852
Tk. 820537 US$ 11975.14
19
96.98
5.10
Tk. 478.50 US$ 6.98 Tk.421.16 US$ 6.15
Total
60
258.56
4.31
Table: CSE Market Performance: July-September 2008 This quarter CSE All Share Price Index 30/09/08 CSE 30 Index as on 30/09/08 CSCX Index as on 30/09/08 Total Turnover Value (Tk mn) TotaL Turnover Value(US$ mn) Total turnover volume (No. mn) Market Capitalisation (Tk Bn) as on 30/09/08 Market Capitalisation (US$ Bn) as on 30/09/08 Issues Traded Issues Gained Issues Declined Average Daily Turnover Value (Tk. Mn) Average Daily Turnover Volume (No. Mn) Number of days traded Cash Dividend Yield as on 30/09/08 Price Earning Ratio (X) as on 30/09/08 Dollar conversion rate= Tk. 68.52 Tk.mn= Taka in Million, Tk Bn= Taka in Billion US$ mn= US Dollar in million, US$ Bn= US Dollar in Billion, No. mn= Number in Million 8996.69 7862.52 5892.71 24832.34 362.41 262.15 819.9 11.97 201 53 143 413.87 4.37 60 2.19 21.01 Last Quarter 9050.56 8037.02 5853.58 29328.21 427.96 264.45 767.77 11.2 211 117 94 473.04 4.27 62 1.90 22.86 Quarterly Change (+/-) (%) -53.87 -0.60 -174.50 -2.17 39.13 0.67 -4495.87 -15.33 -65.55 -15.32 -2.30 -0.87 52.13 6.79 0.77 6.84
-59.17 0.10 -2.00 0.29 -1.85
-12.51 2.32 -3.23 15.26 -8.09
74
Source: Portfolio (CSE). Table: CSE Market performance: Oct-Dec 2008 This Last quarter Quarter CSE All Share Price Index 30/09/08 CSE 30 Index as on 30/09/08 CSCX Index as on 30/09/08 Total Turnover Value (Tk mn) TotaL Turnover Value(US$ mn) Total turnover volume (No. mn) Market Capitalisation (Tk Bn) as on 30/09/08 Market Capitalisation (US$ Bn) as on 30/09/08 Issues Traded Issues Gained Issues Declined Average Daily Turnover Value (Tk. Mn) Average Daily Turnover Volume (No. Mn) Number of days traded Cash Dividend Yield as on 30/09/08 Price Earning Ratio (X) as on 30/09/08 Dollar conversion rate= Tk. 69.45 Tk mn= Taka in Million, Tk Bn = Taka in Billion. 8692.745 7 7566.946 6 5680.586 9 24165.62 1 348.16 243.85 807.88 11.63 207 67 140 447.51 6.45 54 2.61 19.00 8996.69 7862.52 5892.71 24832.33 362.41 262.15 819.9 11.97 201 53 143 413.87 4.37 60 2.19 21.01
Quarterly Change (+/-) (%) -303.94 -3.38 -295.57 -212.12 -666.72 -14.25 -18.30 -12.02 -0.33 -3.76 -3.60 -2.68 -3.93 -6.98 -1.47 -2.79
33.64 2.08 -6.00 0.42 -2.01
8.13 47.57 -10.00 19.18 -9.57
SL 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16
Table: Sectoral Index(July-Sep 2008) Sector 25 Sep 08 30 Jun 08 Change(+/-) Insurance 11221.37 10631.23 590.14 Textiles & Clothing 2102.36 2034.86 67.5 Pharma & Chemicals 12438.09 12943.27 -505.18 Foods & Allied Products 1488.87 1583.45 -94.58 Cement 2978.74 2852.73 126.01 Eng. & Electrical 2444.37 2368.17 76.2 Leather & Footwear 3214.96 3196.76 18.2 Services & Property Development 2238.26 1412.6 825.66 Papers & Printing 1126.28 1379.16 -252.88 Energy 6251.77 6313.26 -61.49 Mutual Funds 14837.28 13846.3 990.98 Banking 30891.55 33418.16 -2526.61 Ceramic 1067.21 1199.55 -132.34 ICT 5300.42 4171.57 1128.85 Leasing & Finance 13587.58 13649.72 -62.14 Miscellaneous 4263.52 2714.05 1549.47
Change % 5.55 3.32 -3.90 -5.97 4.42 3.22 0.57 58.45 -18.34 -0.97 7.16 -7.56 -11.03 27.06 -0.46 57.09
Table: Sectoral Index, (Oct-Dec 2008) SL 1 2 3 Sector Insurance Textiles & Clothing Pharma & Chemicals 31 Dec 08 8761 2186.88 13143.16 30 Sep 08 11221.37 2102.36 12438.09 Change(+/-) -2460.37 84.52 705.07 Change % -21.93 4.02 5.67
75
4 5 6 7 8 9 10 11 12 13 14 15 16
Foods & Allied Products Cement Eng. & Electrical Leather & Footwear Services & Property Development Papers & Printing Energy Mutual Funds Banking Ceramic ICT Leasing & Finance Miscellaneous
1602.75 2722.39 2416.16 2668.79 2088.95 1057.63 6349.23 12099.76 30367.56 1055.89 5694.12 12040.41 3523.52
1488.87 2978.74 2444.37 3214.96 2238.26 1126.28 6251.77 14837.28 30891.55 1067.21 5300.42 13587.58 4263.52
113.88 -256.35 -28.21 -546.17 -149.31 -68.65 97.46 -2737.52 -523.99 -11.32 393.70 -1547.17 -740.00
7.65 -8.61 -1.15 -16.99 -6.67 -6.10 1.56 -18.45 -1.70 -1.06 7.43 -11.39 -17.36
Table: Sector-wise market indicator: September 2008 SL Sector PE Ratio Jun 08 Sep 08 10.77 16.14 27.86 32.71 12.56 39.36 19.50 25.27 15.40 24.08 108.02 23.19 43.23 18.84 31.73 18.05 22.30 17.76 24.71 30.67 10.62 40.38 19.89 21.41 10.66 23.16 86.28 18.43 44.53 45.87 29.24 28.23 Change % 107.09 10.01 -11.29 -6.24 -15.41 2.58 2.01 -15.28 -30.78 -3.80 -20.12 -20.53 3.02 143.45 -7.84 56.39 Cash Dividend Yield Jun 08 0.70 3.67 1.51 1.84 2.36 2.58 3.9 5.07 3.33 2.96 1.43 2.07 3.51 0 1.01 2.90 Sep 08 0.33 2.39 1.62 1.64 0.55 1.42 3.77 2.26 3.84 1.17 0.58 0.55 3.80 0.00 0.74 1.56 Change %
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16
Insurance Textiles & Clothing Pharma & Chemicals Foods & Allied Products Cement Eng. & Electrical Leather & Footwear Services & Property Development Papers & Printing Energy Mutual Funds Banking Ceramic ICT Leasing & Finance Miscellaneous
-52.93 -34.95 7.42 -10.81 -76.55 -45.13 -3.31 -55.33 15.43 -60.31 -59.43 -73.55 8.16 0.00 -27.09 -46.34
SL
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Table: Sector-wise market indicator: December 2008 PE Ratio Change Cash Dividend % Yield Sep 08 Dec 08 Sep 08 Dec 08 Insurance 22.30 18.71 -16.11 0.33 0.45 Textiles & Clothing 17.76 17.54 -1.26 2.39 2.33 Pharma & Chemicals 24.71 26.14 5.77 1.62 1.44 Foods & Allied Products 30.67 29.62 -3.41 1.64 1.70 Cement 10.62 10.39 -2.18 0.55 0.63 Eng. & Electrical 40.38 32.72 -18.96 1.42 1.53 Leather & Footwear 19.89 16.40 -17.55 3.77 4.54 Services & Property 21.41 14.58 -31.89 2.26 1.63 Development Papers & Printing 10.66 18.59 74.38 3.84 2.52 Energy 23.16 15.86 -31.53 1.17 1.18 Mutual Funds 86.28 68.38 -20.74 0.58 0.71 Banking 18.43 18.22 -1.16 0.55 0.26 Ceramic 44.53 60.70 36.32 3.80 0.45 ICT 45.87 45.88 0.01 0.00 0.00 Leasing & Finance 29.24 20.77 -28.96 0.74 0.85 Sector
Change %
36.21 -2.44 -10.88 3.95 14.97 7.86 20.49 -27.75 -34.39 0.52 22.67 -53.07 -88.15 0.00 14.52
76
16
Miscellaneous
28.23
25.74
-8.83
1.56
1.74
11.23
Glossary AGM: Annual General Meeting. Div: Dividend Div. Yield: Dividend Yield calculated as DPS/Closing Price of Share on last date of reporting period * 100 DPS: Dividend Per Share; Total cash dividend/ Number of Shares Outstanding at the year end. EPS: Earning Per Share calculated as Net Profit After Tax/Number of Shares Outstanding at the year end. GDP: Gross Domestic Product. HRD: Human Resource Development. Market Capital: Market Capitalisation calculated as Closing Price of Share on Last date of reporting period Number of shares outstanding at the year end. Mkt Lot: Market Lot. PER: Price Earning Ratio calculated as Closing Price of Share on last date of reporting period/ EPS. SD: Standard Deviation Secondary market: A part of financial market where previously issued securities and financial instruments such as stocks, bonds, options, and futures are bought and sold.
77
References
1. R.N. Agarwal Financial Integration and Capital Markets in Developing Countries: A study of Growth, Volatility and Efficiency in the Indian Capital Market, Institute of Economic Growth Delhi University Enclave, Delhi-110007, India, Delhi, India in its series Institute of Economic Growth, Delhi Discussion Papers with number 21. 2. MIKAEL KVIBCK, 1998,Bangladesh Survey:Issues in Local Bond Market Development, pp 254. 3.Kh. Ashadul Islam Ripon, 2007, The Financial Express 4. Mazhar. M. Islam, POTENTIAL GAINS FROM EMERGING STOCK MARKET OF BANGLADESH: FACTS & FIGURES FOR FOREIGN INVESTORS, 2004,pp-18. 5. Khan, Harun-or-Rashid.1992. The Performance of Stock Markets in Bangladesh:An Appraisal. Finance and Banking. The Journal of the Department of Finance and Banking, University of Dhaka. Volume 2, Number 1 6. La Porter, R. Lopez-de-Silanes.,F, Shlieifer A. and Vishny R.W. 1997."Legal Determinants of External Finance ", Journal of Finance, 54 p. 471 517. 7. Levine R. and Zervos S. 1998.Stock markets, bank, and economic growth, American Economic Review, June pp.537-558. 8. Maunder, P., Myers, D., Wall, N. & Miller, R. 1991. Economics Explained. 2nd ed. London, HarperCollins 9. M Khokan Bepari & Dr. Abu Mollik-BANGLADESH STOCK MARKET GROWING? KEY INDICATORS BASED ASSESSMENT.pp-1-15 10. Ahmed M.F.(1998),Dr. M. S. Jahur & M. J. Uddin, Evaluation of Stock market Performance in Bangladesh-A case study of Chittagong Stock Exchange, Portfolio,pp-1 11. M. Kabir Hassan, Anisul M. Islam, Syed Abul Basher, 2000 Market Efficiency, Time-Varying Volatility and Equity Returns in Bangladesh Stock Marketpp-18. 12.Lassitier(1988), Dr. M. S. Jahur & M. J. Uddin, Evaluation of Stock market Performance in Bangladesh-A case study of Chittagong Stock Exchange. 78
13.Bangladesh Economic Review, Various issues 14. Securities and Excahnge Commission, Annual Report and Quarterly Reports, Various issues. 15. Chittagong Stock Exchange, CSE Bazar poricroma, CSE Portfolio, profile, Various issues 16. The New Age, March 21, 2007 17. Retrieved from i. www.cse.com.bd ii. www.dsebd.com iii. www.bangladeshbank.org iv. www.secbd.com
79

Reasons For Fluctuations in Share Prices in Secondary Market.

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Research Paper On

Shahjalal University of Science and Technology, Sylhet 3114.

Course Code: BAN 509 Course Title: Research Paper

SUPERVISOR Mr. Zillur Rahman

SUPERVISEE Tahsina Haque Simu

CHAPTER 1 Prologue Secondary Market in Bangladesh Objective Scope Methodology Limitations

CHAPTER 2 Secondary market scenario in Bangladesh

Literature Review Secondary market Scenario

The role of secondary market in developing countries: Bangladesh Perspective

2.1. Literature Review 10

Source: Bangladesh Economic Review, 2008

Source: Bangladesh Economic Review, 2008

Chart: Trend of market behavior in DSE

8000 600,000 6000 400,000 4000 200,000

All Share P rice Index

Chart: Trend of market behavior in CSE

2001 2002 2003 2004 2005 2006 2007 2008

2003 3.12 46.56 7.63 19.89 14.36 39.54

2004 5.86 55.33 11.73 29.60 17.70 48.07

2005 5.04 68.39 16.43 41.95 23.44 60.24

2006 5.83 89.37 20.20 35.88 27.47 76.83

2007 10.04 155.35 48.10 48.93 23.35 133.95

Source: The World Bank WDI database.

Chart: Chittagong Stock Exchange structure

Securities and Exchange Commission

Dhaka Stock Exchange

Chittagong Stock Exchange

Chart: Regulatory framework in Chittagong Stock Exchange

easy, accurate transactions and easily accessible to all;

Underwriting new issues

Underwriting new issues

Underwriting new issues

As on 30th June 2007 219 8,1032.9 398,490

As on 30th June 2008 231 102,220 777,743

% increased 5.48 26.15 95.17

Dhaka Stock Exchange

Chittagong Stock Exchange

Chart: Market structure

2002 185 287 163 60,468 1,020 13,581 230 586,846,683

2003 196 286 173 85,312 1,451 6,719 114 203,731,0 08

2004 198 271 185 215,011 3,435 14,808 236 332,534,611

2005 210 263 191 220,353 3,390 13,933 216 308,901,797

2008 238 238 177 807,875 11,632 100,747 1450 972,811

10. 11. 12. 13. 14.

CHAPTER 4 Hypothesis testing Test of Randomness of the Changes in Share Prices

Source: Chittagong Stock Exchange, Data compiled by researcher.

CHAPTER 5 Findings from Interview

Lending rates 12.29% 9.41 9.78 13.51 13.79

Deposit rates 6.95% 4.93 6.58 8.42 5.25

Source: (CSE Portfolio, June, 2008)

CHAPTER: 6 Performance Analysis of Chittagong Stock Exchange (CSE)

Source: (CSE Profile, portfolio)

Chart: The growth in listing of companies and of securities

230 220 210 200 190 180 170 160 150

Chart: The growth in number of securities traded

Chart: Composition of listed securities at the end of 2008.

Year 2002 2003 2004

No. of trading days 287 286 271

Year 2005 2006 2007 2008

No. of trading days 263 231 237 238

Chart: No. of trading days

Source: (CSE Profile, portfolio)

(in million taka)