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Mahmudul Alam et al. This is an open access article distributed under the Creative Commons Attribution License , which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. The paper tries to find evidence supporting the impact of continuous policy reforms on the market efficiency on the Dhaka Stock Exchange DSE.
To get the result, both nonparametric test Kolmogrov-Smirnov normality test and run test and parametric test autocorrelation test, autoregression have been performed. The stock market is one of the most important sources for companies to raise money. This allows businesses to be publicly traded or raise additional capital for expansion by selling shares of ownership of the company in a public market. The liquidity that an exchange provides affords investors the ability to quickly and easily sell securities.
This is an attractive feature of investing in stocks, compared to other less liquid investments. History has shown that the price of shares and other assets is an important part of the dynamics of economic activity and can influence or be an indicator of social mood.
Rising share prices, for instance, tends to be associated with increased business investment and vice versa. Share prices also affect the wealth of households and their consumption. Therefore, a regulatory body SEC must keep an eye on the control and behavior of the stock market and, in general, on the smooth operation of security market functions.
The smooth functioning of all these activities facilitates economic growth in ways that lower costs and enterprise risks and promote the production of goods and services as well as employment and thus contribute to increased prosperity.
After liberation when Dhaka Stock Exchange resumed trading activities in , only 9 companies were listed having a paid up capital of Taka By the end of number of securities listed on DSE became with market capital of Taka , As the market grew investment friendly rules and regulations were needed to be introduced. The Securities and Exchange Commission SEC was established on 8th June, under the Securities and Exchange Commission Act, to protect the interests of securities investors, to develop and maintain fair, transparent, and efficient securities markets, and to ensure proper issuance of securities and compliance with securities laws.
This has increased public interest to invest in the capital market. Foreign portfolio investment started to stream due to favorable regulatory conditions. In October a group of brokers, foreign portfolio managers, and sponsors of listed companies manipulated stock prices. As a result, at the end of , few local and foreign investors got a huge gain.
On the other hand, general public was trended to invest and faced a huge loss. In order to revive the confidence of the investors and to ensure the level playing field for all the market participants, the SEC formulated various policies for DSE to adopt in various times. But no research has been done to evaluate whether adaptation of thse policies has been fruitful efficiency improvement for the market or not.
So this study tries to find out the effects of different policies on market efficiency, where policies are grouped into related topics and on time basis to determine their gradual effect on market efficiency for DSE. Therefore the basic research question is the following. Previous studies on testing weak-form efficiency of developing and less developed stock markets like those to DSE there are two groups of findings. One group of researchers who find weak-form efficiency are Branes [ 2 ] on the Kuala Lumpur Stock Exchange , Chan et al.
Another group of researchers who give evidence that developing and less developed markets are not efficient in weak-sense are Cheung et al. In a World Bank study Claessens et al. Similar findings are reported by Harvey [ 8 ] for most emerging markets. Roux and Gilbertson [ 9 ] and Poshakwale [ 18 ] found the evidence of nonrandomness stock price behavior and the market inefficiency not weak-form efficient on the Johannesburg stock exchange and on the Indian market.
The result found that DSE equity returns held positive skewness, excess kurtosis, and deviation from normality, and the returns displayed significant serial correlation, implying that the stock market is inefficient. Mobarek and Keasey [ 21 ] concluded that Dhaka Stock Exchange does not follow random walk model, and which are significant autocorrelation causes to DSE is not weak form efficient.
Their result did not change for different subsample observations, without outlier, and for individual securities. Based on the data four months before and four months after the automation, the paper measured risk-return performance, estimated SML for big capital and small capital companies before and after automation and tested EMH.
The test results indicated that the market does not improve, and even after automation manipulation continued. Islam and Khaled [ 13 ] analyzed the predictability of the share price in Dhaka Stock Exchange prior to the boom in and by using heteroscedasticity-robust tests found evidence in favor of short-term predictability of share prices in the Dhaka stock market prior to the boom, but not during the postcrash period.
After thorough investigation it was concluded that the Securities and Exchange Commission was able to give more transparency of the Dhaka Stock Exchange by taking various steps. Uddin and Alam [ 14 ] examine the linear relationship between share price and interest rate, share price and growth of interest rate, growth of share price and interest rate, and growth of share price and growth of interest rate were determined through ordinary leastsquare OLS regression.
For all of the cases, included and excluded outlier, they found that Interest Rate has significant negative relationship with Share Price and Growth of Interest Rate has significant negative relationship with Growth of Share Price in Dhaka Stock Market so that DSE is not weak-form efficient.
As proper risk-return combination of the market seems to be deficient in DSE and the market is not liquid, interests of the available investors are being very insignificant. The previous researchers measured DSE market efficiency by focusing on the transparency of DSE, effect of the new information on the market, effect of economic incidents on the market, any specific policy effect and so forth.
But no study focused on the effect of policies on market efficiency. Here lies a crucial scope of work. Evaluating policies for effectiveness will obviously help policy makers and regulators. The findings may also identifyand pose some challenges before the policy makers in order to address.
That challenge will ultimately provoke further studies on the issue. All the policies of the market are grouped into eleven categories based on the timing and similarities of the issues involved in there.
The total sample of this study includes 3, daily observations of DSE Daily General Price Index for the total sample period to The study examines the distribution of equity returns by dividing the sample period into eleven subperiods, periods before and after a group of policy was adopted for the market.
To confirm the distribution pattern of the stock return series, Kolmogrov-Smirnov Goodness of Fitness test is used, which provides further evidence whether the distribution is normal or not. Kolmogrov Smirnov Goodness of fit test test is a nonparametric test and is used to determine how well a random sample of data fits a particular distribution uniform, normal, and Poisson. The one-sample test compares the cumulative distribution function for a variable with uniform and normal distributions to test whether the distributions are homogeneous or not.
This paper uses both normal and uniform parameters to test the distribution. The run test is one of the nonparametric approaches to test and detect statistical dependencies randomness which may not be detected by the autocorrelation test. It is preferred to use run test to prove the random-walk model because the test ignores the properties of distribution.
Moreover, the study investigates the parametric tests to examine the findings of nonparametric test. Autocorrelation test is a reliable measure for testing of either dependence or independence of random variables in a series. Kendall [ 16 , page ] computed the price changes at different lagged 1,2,3,4 time periods, that was popular among researchers e. Autocorrelation tests evidence whether the correlation coefficients are significantly different from zero or not.
The serial correlation coefficient measures the relationship between the values of a random variable at time and its value in the previous period. The study also uses autoregression techniques in time series analysis to examine if there is any nonzero significant relationship between current return series with the first lag AR1 to eight lag AR8 values of itself.
For the purpose of study these major policies are classified in 11 groups based on timing and related issues. The laws of security were first introduced in by the then British government ruling India. By adding new provisions and deleting unnecessary provisions, the Security Act is still active in DSE. At present, Dhaka Stock Exchange DSE is a registered Public Limited Company, and its activities are regulated by its articles of association and its own rules, regulations, and by-laws along with the Securities and Exchange Ordinance, , where the procedures of issuing the stock capital have been included.
In this law the shares, shareholders, and the functions of the investment are properly defined. The accounting procedures were also included in the new rule.
According to SEC Appeal Regulation , an appeal shall be filed in a prescribed form before any officer is specified by the commission on behalf and an appeal against more than one person should not be filed in one form.
According to the SEC Prohibition of Insider Trading Regulation , no insider personally or by others can provide information for the investment business. No sponsor, director, or solicitor of a DSE registered company can purchase the share of that company without any prior permission of the authority.
If anyone does so, his or her registration will be canceled out. Nobody can work as a merchant banker without prior registration. For registration, the banker needs manpower, capital, and the experience of the banking service. The public issue rule states that in the issue of prospectus the issuer needs to provide all material information and should include the risk factors. The company needs to provide the description of the asset and the future working plan. Right share will not be issued of more than the par value.
Without the declaration by a credit rating company, no public debt or right issue is permitted. The clearing shall work out the due position of each and every member in every security on the category of A, B, and G. According to the Depository Act , a depository shall not be entitled to carry on any activities without registration, subject to the provision of the by laws: The depository should not be a member of issuer.
DSE Automated Trading Regulation divides the trading period in five sessions, and the work station will be available as decided by the council. The transaction orders are being divided in three types price, volume, and validity. It is mandatory for all members to participate to the fund.
The principal amount of the fund is given to the investor at the time of winding up and insolvency. According to the SEC Stock dealer, stock broker and permitted representative regulation , nobody can do transactions without registration.
If the stock dealer or broker is not a member of the stock exchange or not a Chartered Company and the cash paid up capital is less than Taka 2. DSE Member Margin Regulation states that every member shall provide extra money as provided in addition to the security deposit. According to SEC Market Creation Regulation , only merchant bankers, schedule banks, registered stock dealers or brokers, and the persons approved by the commission can create the market.
Only the stocks of the listed companies can work as an instrument of the market creation. A director of the mutual fund will not be a merchant banker, portfolio manager, or stock dealer at a time. The company, which has a minimum paid up capital Taka 30 million, no accumulated loss, operated for at least one year, and regular in arranging the AGM can be listed directly to the DSE according to the regulation of Securities and Exchange Commission Over-the-Counter Rules states that on the request of the issuer company, when there is no public shareholder other than the sponsor, shall discontinue the OTC facilities of any security.
The transaction of any security shall be done only by the registered stock dealer or broker, and the exchange prominently discloses the security available in the OTC market. According to The SEC Regulation , a mass notice is needed to be given for acquiring the mentioned share by the person who already owned mentioned share or not. Only the scheduled bank and the financial institution that have safety vault, required manpower, directors can be registered as a custodian of the security without any legal act.
According to the Depository User Regulation , in the event of any situation beyond the control of the depository, by consultation, the commission can take action, and the depositors should send one copy of their procedure to the commission in that case.
In case of mass offer, the security is needed to be listed under the OTC of stock exchange for three months.