EXECUTIVE SUMMARY

 The analysis of securities and make investment decisions fall into two very broad

categories: fundamental analysis and technical analysis. Fundamental analysis involves

analyzing the characteristics of a company in order to estimate its value. Technical

analysis takes a completely different approach; it doesn't care one bit about the "value" of

a company or a commodity. Technicians (sometimes called chartists) are only interested

in the price movements in the market.  Despite all the fancy and exotic tools it employs,

technical analysis really just studies supply and demand in a market in an attempt to

determine what direction, or trend, will continue in the future. In other words, technical

analysis attempts to understand the emotions in the market by studying the market itself,

as opposed to its components.    

In the process of economic development, stock markets play a pivotal role in channeling

funds from the surplus unit to the productive (deficit) units. Stock markets provide

adequate finance to the entrepreneurs. In recent years with the changing economic

climate, the Government of Bangladesh has emphasized the development of stock

markets in the country. Government is also trying to develop the stock markets through

different policy measures, even though the rate of development is not up to expectation.

Thus, the situation warrants detailed examination of the stock markets of Bangladesh and

drawback in the system need to be point out. In this paper we tried to analyze the

development and growth of stock exchanges and Securities and Exchange Commission

(SEC) of Bangladesh. For evaluating the stock market performance data has been

analyzed through the various statistical measures like growth percentage, average growth,

trend equations, square of correlation coefficient & correlation matrix for Dhaka Stock

Exchange (DSE) & Chittagang Stock Exchange (CSE). The paper also briefly describes

some of the problems of Bangladesh stock market such as, inactive stockbrokers, non-

existence of market makers, kerb trading, malpractice’s of companies, non-transparency

of the deals, and poor performance of Securities and Exchange Commission (SEC) etc. In

order to overcome the problems a few suggestions are given in this paper for stable the

stock market.

INTRODUCTION

A capital market will play as a strong catalyst in the industrialization and economic

development of the country.The Dhaka Stock Exchange (DSE) is a new and emerging

stock exchange located in the capital city of Bangladesh. The Dhaka Stock Exchange has

also undergone significant changes contributing towards the development of Bangladesh

capital market. Theoretical and empirical literature has shown that the prices of shares

and other assets are an important part of the dynamics of economic activity of the

country. The development of the capital market is crucial for capital accumulation,

efficient allocation of recourses and promotion of economic growth. The capital market

acts as an intermediary between surplus units and deficit units of an economy and

facilitates savings into investments. In addition, by ensuring liquidity for the invested

funds, the capital market ensures optimum allocation of resources. Bangladesh being a

developing nation in South Asia and characterized by underinvestment and poor

infrastructure development needs presence of organized and well–functioning financial

markets that would facilitate investment in efficient and profitable ventures and promote

economic advancement. The Bangladesh’s Dhaka Stock Exchange market has witnessed

a radical transformation in the last decade. The adoption of international quality trading

and settlement mechanisms and reduction of transaction costs have made the investors,

both in domestic and foreign, more optimistic which in turn evidenced a considerable

growth in market volume and liquidity. The market feature a developed regulatory

framework, a modern market infrastructure, removal of barriers to the international

equity investment, better allocation and mobilization of domestic resources and increased

market transparency. These reforms set the stage for significant market expansion, with a

trend development in size and liquidity. New equity issues, volume and value of trading

and the number of traded companies all recorded significant progress. As a result, market

capitalization increased from 1.3764 percent to 16.2849 percent of GDP during 1990-

2009 and the turnover ratio increased from 1.6843 percent to 54.2524 percent. All these

infer better efficiency of Bangladesh’s Dhaka Stock exchange market. Despite this

transformation Dhaka Stock Exchange market (DSE) has been shown greater volatility

which has affected the informational efficiency of DSE. The Dhaka stock market has

been experiencing volatility since its inception-the indices reached the highest level in its

history in November 1996 and eventually crashed; afterwards investors lost their

confidence about the stock market. As a result, regulators reformed the market and

introduced automation transaction in 1998 and this was expected to conduct studies on

informational efficiency, particularly to investigate any improvement as a result of the

automated trading system in the market. Thus both companies and investors want capital

markets to assign fair prices to the securities being traded. In the language of corporate

finance, companies and investors want the capital markets to be efficient. Whether capital

markets are in fact efficient is a question which has been studied extensively for many

years. One school of thought believes that the financial markets are efficient. Another

school of thought believes that the financial markets are not efficient. Even within the

believers of market efficiency, three forms of efficient market hypothesis are developed.

A market is weak form efficient if the current stock prices or return series are not

predictable from past prices or return information (Fama 1991) and hence follow a

random walk. The market is semi-strong form efficient if the current security prices

reflect all publicly available information. Finally, the market is strong form efficient if

security prices reflect all private and public information. The traditional analysts strongly

believe that the stock markets are efficient because stock prices reflect the true market

value of future dividends. Thus the shareholders make decisions on which shares to add

or remove from their portfolios. The investors such as commercial banks and other

financial institutions make decisions about whether and at what price to offer finance to

companies. Financial managers make decisions in the major areas of investment,

financing and dividends. Shareholders, investors and financial managers can inform their

decisions by evaluating the financial performance of companies using information from

financial statements, financial database, the financial press, and from Internet. Ratio

analysis of financial statements can provide useful historical information on the

profitability, solvency, efficiency, and risk of individual companies. By using

performance measures such as economic profit, earning per share, net asset value per

share, and value added, company performance linked more closely with shareholders

value and shareholders wealth and attention can be directed to ways in which companies

can create more value for shareholders. But in recent years many market analysts have

started arguing for market inefficiency, at least in its weak form. They claim that the

traders are now paying more attention to information related to recent trends in return

instead of putting emphasis on the information related to future dividends. A large

number of traders are buying stocks only because past returns were very high. These

traders are often called feedback traders; believe that if the stock returns were in high in

the recent past, they are likely to be high in future. Such behaviors of traders cause stock

prices to go beyond the true values of stocks in the short run. This feedback trading

makes the market more volatile in the short-run because in the long-run the stock prices

tend to return to their true values.

BRIEF HISTORY OF STOCK MARKET IN BANGLADESH

The stock market history of Bangladesh refers back to 28 April, 1954 when the East

Pakistan Stock Exchange Association Ltd. was established. Formal trading began on the

bourse in 1956. The trading was suspended during the liberation war of Bangladesh in

1971. Operation resumed again in the 1976 with the change in government policy.

During 1976, there were only 9 listed companies with total paid up capital of Tk.0 .138

billion and market capitalization of Tk. 0 .147 billion which was 0.138 % of GDP (Khan,

1992). Since then the stock exchange continued its journey of growth. The second stock

exchange of the country, the Chittagong Stock Exchange(CSE) was established in

December 1995.In order to control operation of the stock exchanges and trading of stocks

of listed companies, the government of Bangladesh established the Securities and

Exchange Commission of Bangladesh on 8th June, 1993 under the Securities and

Exchange Commission Act, 1993 .The mission of the SEC is to protect the interests of

securities investors, develop and maintain fair, transparent and efficient securities

markets,  ensure proper issuance of securities and compliance with securities laws.

From the inception the stock market of the country was growing in a slow pace. There

was a large surge in the stock market in the summer and fall of 1996 evidenced by a

197.43%, 372.30% and 370.51% increase in the market capitalization, total annual

turnover and daily average turnover respectively in DSE and 506.63%, 210.2% and

615.15% increase in the market capitalization, total annual turnover and daily average

turnover in CSE. DSE general index grew from 832 in January 1 1996 to 3567 in

November 14, 1996 while that of CSE grew from 409.4 in 1995 to 1157.9 in 1996. The

market, however, crashed in December of 1996 and the index started to decline

significantly since then with the index assuming a value of 507.33 as of November of

1999, a cumulative decline of 83.44% from 1996 to 1999 with the annual rate of 27.82%,

and has yet to fully recover. Investors’ confidence was significantly damaged because of

excessive speculations, allegedly aggravated by widespread irregular activities. The

government of Bangladesh undertook the Capital Market Development Program

(CMDP) supported by the ADB on 20 November 1997. The CMDP aimed at (i)

strengthening market regulation and supervision, (ii) developing the stock market

infrastructure, (iii) modernizing stock market support facilities, (iv) increasing the limited

supply of securities in the market, (v) developing institutional sources of demand for

securities in the market, and (vi) improving policy coordination. The policy matrix of the

CMDP included 95 program measures. Central Depository Bangladesh Limited (CDBL)

was incorporated as a public limited company on 20th August 2000 to operate and

maintain the Central Depository System (CDS) of Electronic Book Entry, recording and

maintaining securities accounts and registering transfer 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. CDBL went live with the Electronic Treasury Bills

registry of Bangladesh Bank on 20th October, 2003 and thereafter started equity market

operations on 24th January, 2004. It was set up to facilitate the computerized delivery and

settlement of securities and eliminate to the extent possible, the paper work involved in

handling the transactions and that would ensure risk-free and cost-effective settlement.

Before establishment of CDBL, the delivery, settlement and transfer procedures were

handled manually and were plagued by lengthy delays, risks of damage, loss, forgeries,

duplication and considerable investment in time and capital. Besides, both the CSE (July

1998) and the DSE (August 1998) have automatic trading services. By having automated

trading system and a central depository in place, the credibility of the country's Stock

Exchanges in the eyes of the prospective foreign investors are expected to grow stronger

and boost investment activities in the country's stock markets. Contrastingly, foreign

portfolio investment, never more than $200 million, has virtually disappeared form the

stock market of Bangladesh.

PROBLEM STATEMENT

Stock markets are great financial institutions for economic growth provided they are

managed properly. Billions of dollars worth of capital can be raised from millions of

investors, small and large with voluntary participation. From stock market investors

can earn lots of money as well as lose lots of money. Artificially market

can move this way or that way. It is not difficult for the big investors or

the regularity authority to make market up word or down word. Legally

or ethically it is wrong but in Bangladesh it is very familiar scenario.

In Bangladesh there are many factors that are responsible for babul and crash of share

market. These reasons are market regulatory authority manipulators, childish behavior on

institutional investors, intervention of central bank, share split circuit breaker theory etc.

all this reasons are created intentionally or because of the mistake made by the regulatory

authority. Whatever because this activity, currently we have a volatile stock market.

PURPOSE OF THE STUDY

Purpose of the study is to explore, gather knowledge about certain legal and ethical issues

and to provide solutions concerning the activities of recent ups and downs of share

market in Bangladesh.

LITERATURE REVIEW

The Bangladesh capital market continued to rally handsomely in 2010 even though U.S

and European market had to recover from recession effect. The market capitalization to

GDP ratio has been increased over the year from 30% to 50%. DSE General Index

(DGEN) has gained its peak at 8,918.51 point in December 5, 2010 and the lowest value

was at 4,568.40 point.

Over the year, DGEN increased 82.78% and reached at 8,290.41 point at the end of the

year. The total market capitalization of all shares and debentures (excluding t-bills and t-

bonds) of the listed securities at the end of December, 2010 also stood higher at USD

49.4 billion, indicating a gain of 84 percent which was higher than USD 26.8 billion at

the end of December, 2009. The total turnover has increased from USD 0.13 billion to

USD .25 billion which indicates a 91% growth. Along with other factors, at least a

portion of the upward movement of the market can be explained by the inadequate

number of securities and huge fund flow in the capital market. The market was not able to

uphold its bullish position from the beginning of December, 2010.

During this time institutional investors had the tendency to realize profit from the market

and it was expected that the market would remain flat in this time. However, the actual

steep downward trend was not expected. One of the primary reasons for this abnormality

could be the Bangladesh Bank’s decision regarding CRR (Cash Reserve Ratio) and SLR

(Statutory Liquidity Ratio) in the hope of curbing the inflationary pressure. Following the

actions, call money rate has soared significantly and it rose as high as 180%, breaking the

earlier record of 150% hit on March 30, 2006. From June to November, 2010 excessive

liquidity decreased by 28% (see the table below).

Name of Stock Index Fig as on Dec 30, 09 Figure as on Dec 30, 10 Percentage (%) change

BSE Sensex 17464.8 20509.1 17Karachi 100 9386.9 12022.5 28

DJ CBN China 600 29052.8 26701.3 -8Bangldesh DSE general 4535.5 8290.4 83

S&P 500 1115.1 1257.6 13Heng Seng 21872.5 23035.5 5

REASON BEHIND THE OVERVALUED STOCK PRICE

Lack of Investment Opportunity

If we look, our power sector falls deeply in the year of 2009 & 2010. Lack of supply of gas, electricity

shortage entails some investors to look behind from the real sector. In these two years the investment

progress in industrial sector was seen very slowly for this reason. Again, due to shortage supply of

power, the production was not up to the mark from the investor’s point of view. So lots of investors

invest their money to stock market rather than industrial sector. In this way lots of money injected in

the market but supply of share was increase so stock price rise.

Whitening the black money

It was started in the year 2007. At that time caretaker government allows the black money holder’s to

invest their money into stock market without any charged. This rule is sustained in 2009 as well as

2010.Certainly a huge amount of black money is injected into the stock market in different period of

time and we know that if the demand is more than supply price will rice.

Lack of supply of new shares:

It is to be noted that the stock market will run smoothly and efficiently, when the number of shares are

matched with number of money injected into the system. Most of the experts as well as analyst alarm

DSE, SEC and the government about the need of supply of new shares into Bangladesh capital

market. In 2010 only 13 securities are added into stock market. Among them, 8 mutual fund, 1bond

and 4 different companies are enlisted. These numbers are very short against the demand of the share.

Establishment of New Brokerage House & Merchant Bank’s branch:

In the year 2010 there are huge number of brokerage house established in country’s various areas.

SEC is reluctant to give nod to brokerage firm to establish more branches around the country. As the

number of scripts remain very small in respect with money injected in stock market. Around 200

branches was opened in the year 2010, So more people were interested in stock market as the price of

the most of the stock were rising over the period of time. But in this frame, the expected number of

shares could not be higher. So, as a result the stock was getting higher price.

Lack of Surveillance of Bangladesh Bank:

According to Bank Company Act, No commercial bank in Bangladesh can invest more than 10% of its

total liability. In the beginning of 2010, Bangladesh Bank was alarming some banks to control their

heavy investment in stock market but not strictly conveyed. As a result, banks including leasing

companies and merchant banks, seeing negligence of Bangladesh Banks role, investing huge bulk of

money into stock market. At that very beginning Bangladesh Bank was reluctant to rules.

Share split:

In April SEC asked all the companies, who have a face value of 100 tk per share to convert in 10tk

share. Now companies having 100tk face value started to declare the changing its face value. In this

declaration it was found that the stock price of the respective company is jumped to 30 to 40% higher

than previous price. Through the fundamental of the company itself remains unchanged. It is

psychological effect upon the investors that changing face value can increase stock price to same

extent.

Manipulators Involvement:

Most of the experts and analysts said that manipulators are involved in every stock market. They play

a big role to increase the price of stock. Manipulators or gambler basically en---- with low paid up

capital, which is considered as small companies. They keep buying the shares until there are not

sufficient buyers to sell those shares. Sometimes they brought the share price 2-times within a few

days. It is observed many counties worldwide. In case of Bangladesh market it was observed that there

remains huge number of manipulators. These manipulators are found as big businessman. We can see

some of these stock price were getting 15 times more than it was before one year. It could happen if

there involved in strong manipulators. Sometimes in case of big paid up capital share increasing price,

they joint or collaborate with big merchant banks commercial banks and leasing companies they

decide together that which big companies price share to be increased at what percentage or what price

level. According to their plan, they created some rumors, which is injected by their nominee people in

brokerage firms. Sometimes if planned failed, these manipulators manage the high officials of SEC

former high officials of different banks and financial institutions, proprietors of some brokerage house

and their selected nominees are considered as manipulators. It was said that there remains 10-15 such

groups who control the whole market.

Fraudulent in showing Company Fundamental:

Company fundamental is the 1st criteria which upon an investor primarily look before investing in the

particular stock. Fundamentals means: Companies earning per share (EPS), last 5 years dividend,

projected future dividend, net operating each flow per share, price earning ratio, net asset value per

share etc. sometimes the insider high officials of the company manipulate the figure of those variable

in such a way that can impact on the stock market. Some of the companies like CMC Kamal, Mithun

Knitting. ACI Formulation manipulated or changed the figure of the fundamentals which were not in

consistent with pervious records. They showed 5-10 times move earning within three months, which

represent absolute fraudulent. By this means, a particular stock price can certainly be increased.

Face books Role:

The social site Facebook had also played a role to hike in the stock price. Some investors open an

account in Facebook. They form a group in the name of Bangladesh share market. In this site they post

very lucrative items to purchase and leaks price sensitive information. Sometimes it prove true but the

most of the time, it leads the general investors to mislead.

Our share market experienced a totally new kind of development in the trading. It

watched both sides of a coin within two trading days. On January 10, 2011 we saw a huge

selling pressure and a record fall, 600 points in the general index of Dhaka Stock

Exchange (DSE) within just 50 minutes of trading. Again in the next day we found the

other side of the coin when almost no seller was founding case of most of the shares. At

the end of the day’s trading the DGEN, actually, gained 1012 points taking into

consideration the previous day’s loss. Thus we witnessed both gain and record decline in

index on January 10 and January 11 respectively. It appeared like a circus said a market

analyst. The DGEN which was 5367.11 points on January 10, 2010, increased 6249.35 on

the same date this year. But in a day’s gap market index soared to 7512.09. The

percentage change in one year stood at 39.9 from 16.40 within 2 consecutive trading

days.

In 2010, institutional sector some banks and non-bank financial institutions showed their

investments characteristics like general investors. Over last 2 years, the profit of most of

the banks and financial institutions became two to three times more than that of the

previous years. The profit growth was attributed to profit earned from investments in

shares. Thus many banks and institutions concentrated on share business instead of

investing in their core banking activities.

In early December 2010 when general index reached the record 8918.5 points, many

analysts expressed their concern about the overvaluation and syndicated price hike. But

that time our general investors were over inspired by the gain from the market. It was

seen that most regularity decisions failed to slow down the unending market rally.

Investing people became more dependent on rumors than fundamentals of the issues

traded on the bursts. Insider traders turned out to be big gainers. Now it is becoming clear

to us that there were many other factors that have brought the capital market on the verge

of a collapse. Many of us started blaming the regulators. It is a matter of great regret that

the SE, the central bank and other shareholders are also blaming each other. This

ultimately proves the lack of coordination among them in policy-making and policy

implement.

REASONS FOR COLLAPSE

Intervention of central bank

In December the central bank raised the percentage of money commercial banks must

hold in reserve in an effort to curb local lenders' exposure to the market and rein in

inflation. Experts say this move played a key role in the crash, prompting a mass stock

sell-off by banks as they sought to raise cash. (Salauddin Ahmed Khan)

Circuit Breaker theory

The introduction of a so-called "circuit breaker" to automatically halt trading if the

market rises or falls more than 225 points was also an ill-advised. It creates panic (among

retail investors). The government has to get rid of it.

Rumor

In Bangladesh most of the investor does not study the market. They depend on others and

believe them from the bottom of their heart because they think others are more

experience. They do not have faith on themselves. There is a phrase that “if you ran

without knowing where to go you will fall badly “same thing happened with the

investors.

Childish behavior of institutional investor

Institutional investors are behaving like retail investors. They invest for a short period of

time and sell the securities in the market. This behavior is one of the main reasons for the

collapse of share market in Bangladesh. Initially ICB, Agrany bank, IDLC Finance,

Lanka-Bangla Finance invest in a institutional attitude. When AB Bank entered into the

market all the financial institution /Merchant Bank do not maintain the discretionary

account rather provide lone to the non-discretionary account and buy and sell share

according to the client which creates a great impact in the share market. (Asset

Management Company’s meeting)

Manipulation of investors

In each stock market there are some investors who are very big. They can easily make the

price of stock higher or lower. They are known as gambler. In case of Bangladesh market

it was observed that there remains huge number of manipulators. These manipulators are

found as big businessman. At first they raise the price through bulk transactionl, we can

see some of this stock price were getting 15 times more than it was before one year. It

could happen if there involved in strong manipulators. Sometimes in case of big paid up

capital share increasing price, they joint or collaborate with big merchant banks

commercial banks and leasing companies they decide together that which big companies

price share to be increased at what percentage or what price level. According to their

plan, they created some rumors, which are injected by their nominee people in brokerage

firms. In this way they raise the price and attract the people and after that when they have

made a good amount they sell their share to the market. When they release their share to

the market sell quantity becomes more then buy quantity witch cause down word

movement of stock price.

IMF issue

The International Monetary Fund's prescription to Bangladesh Bank for addressing the

overexposure of commercial banks to the stock market also propelled the unprecedented

fall. The SEC's excessive initiatives to cool the market in a short time are also blamed for

the crash.

Artificial Rise

One of the biggest reason may be is that market got artificial rise last month just to

encourage the the small and medium investors and as soon as they stuck their money in

the market big fishes withdrew their money to a large extent hence causes sudden decline.

The Bubbles Burst

Should the central bank play some role in bursting asset bubbles? This is a contentious

issue that has been discussed for a long time. Some argue in favor of the view that central

banks should burst bubbles. But, in their view, monetary policy should respond to asset

bubbles in a cautious and moderate manner in order to avoid economic distortions. Some

others argue against the role of central bank in bursting bubbles. They say that bubbles

generally arise out of some combination of irrational exuberance, jumps forward in

technology and financial deregulation, for which the connection between monetary

conditions and the rise of bubbles is tenuous.

Investment Withdraw

The analysts have opined that the immediate reason for this crash was the policy of the

regulators of the market who laid down a limit for investment by the banks and other

financial institutions in the stocks. This was done in order to avoid the market being

overvalued. As the banks and other big investor institutions withdrew the capital from the

market, the panic ensued.

Control the Liquidity

Market insiders blamed the recent fall on the central bank's measures to control the

liquidity flow in the banking system. In an effort to contain inflation, the central bank

recently increased the Cash Reserve Ratio (CRR) for banks by 50 basis points to 6 per

cent. It was also aimed at stopping credit-flow to non-productive sectors.

Forced Sale

The demands also include immediate halt to ‘forced sale or trigger sale and reasonable

rates of bank interest. The central bank also issued another directive asking financial

institutions to adjust their stock investment exposure that month. From January, no

institution will be allowed to invest more than 10 per cent of its total liabilities in the

stock market, and the exposure will be calculated based on market price, not cost price.

Corruption by the regularity authority

According to the law a person who is engaged in the SEC, DSE or CSE or their spouse

do not have the authority to made transaction to the stock market but reality is little bit

different. Lots of SEC’s employees spouse are engaged in stock market and made heavy

transaction with more than one account. These people have played a vital role for the

collapse of stock market in 2010-2011. After December 5 they sell stocks heavily which a

big reasons for the collapse.

RESEARCH QUESTIONS

This study proposes to examine the following research questions:

1. Is there any significant relationship between share split and over price?

2. Is there any significant relationship between manipulation and over price?

3. Is there any significant relationship between role of face book and stock over

price?

4. Is there any significant relationship between whitening the black money and stock

over price?

5. Is there any significant relationship between intervention of Bangladesh Bank and

crash of share market?

6. Is there any significant relationship between Corruption by the regularity

authority and crash of share market?

7. Is there any significant relationship between Childish behavior of institutional

investor and crash of share market?

8. Is there any significant relationship between manipulation of investors and crash

of stock market?

HYPOTHESES

The hypotheses resulting from the research questions are:

1. There is a significant relationship between share split and over price

2. There is a significant relationship between manipulation and over price.

3. There is a significant relationship between role of face book and stock over price

4. There is a significant relationship between whitening the black money and stock

over price.

5. There is a significant relationship between Corruption by the regularity authority

and crash of share market

6. There is a significant relationship between intervention of Bangladesh Bank and

crash of share market.

7. There is a significant relationship between Childish behavior of institutional

investor and crash of share market.

8. There is a significant relationship between manipulation of

investors and crash of stock market.

RESEARCH METHODOLOGY

Research Design

With the above findings in the literature, this study aims to inspect the possible reasons

for the overvalued and collapse of stock price in Bangladesh stock market. The projected

framework (Figure1) represented the outline and arrangement of relationships among the

set of considered variables. The purpose of the study was to measure correlations among

variables.

Thus, this study aims to inspect the possible reasons for the overvalued and collapse of

stock price in Bangladesh stock market. Here, Lack of Investment Opportunity,

Whitening the black money, Lack of supply of new shares, Establishment of New

Brokerage House & Merchant Bank’s branch, Lack of Surveillance of Bangladesh Bank,

Share split, Manipulators Involvement, Fraudulent in showing Company Fundamental,

Face books Role, Intervention of central bank, Circuit Breaker theory, Rumor, Childish

behavior of institutional investor being are considered as the independent variables and

over price of stock and collapse of market is being considered as dependent variable.

Sampling Method

The data used in this research consists of questionnaire responses from participants who

are involved in stock market in Dhaka city. The population would be all the people who

are engaged in share market in our country. The study particularly targets the

knowledgeable personnel of stock market. So, samples will be taken only from these

personnel of stock market. Our sampling technique will be simple random sampling

under the probability sampling method. Cooper and Schindler (2003) stated that in this

type of probability sampling method each population element is known and has an equal

chance of selection. And our sample size will be 150. The study will be conducted only

in Dhaka city due to time and budget constraints.

Survey Instrument

Questionnaires are the cornerstone for market research and the success of the questions

will be determined by the quality and arrangement of the questionnaire itself. Without

hesitation, questionnaires will permit us to gather information that cannot be found

elsewhere from any secondary information such as books, newspapers and internet

resources. This is because the information we obtain will be fresh and unique.

The questionnaire survey is the most successful method for this study to collect the data

because conducting personal interview to such a large sample of personnel would have

been both time consuming and expensive. A structured questionnaire will be used in this

study to collect data from the experts of share market. So, we can easily utilize the

gathered data for quantitative analysis.

Data Collection

Both primary and secondary data have been used in this study. First, primary data have

been collected from interview. In order to gather information, in depth interview

technique has been applied Mr. Shamimuzzaman one of the owner of ACE brokerage

farm.

Secondary data sources include Bangladesh Bank, including various reports and

publications of SEC, Chittagong Stock Exchange (CSE) and Dhaka Stock Exchange

(DSE). The researchers have tried to use data sets spanning recent times with some

exceptions depending on availability.

This study is mostly qualitative in nature. After data collection, necessary screening has

been performed before tabulation and graphical presentation. The concerns expressed by

the issuers and the investors, and the reactions of the regulators have been analyzed.

Finally, based on the findings and analyses, policy recommendations have been made.

Data Analysis

Our planned study was a co relational study. Correlation is a technique for investigating

the relationship between two quantitative variables and Pearson's correlation coefficient

(r) is a measure of the strength of the association between the two variables. So here, to

investigate data, Pearson’s Correlation analysis will be used to find out whether any

connection exists between the independent and dependent variables. The acquired data

will be analyzed through Statistical Package for Social Science (SPSS) software

version11.5.

Research Timeline

2011 June Research Proposal

Writing

2011 June Literature Review

2011 June Data collection

procedure

LIMITATION OF THE STUDY

It will be quite impossible for us to prepare a report without limitations.

Lacking of information will be a big factor. We will conduct the proposal

during our ongoing course, thus we will face serious time constrains

and money constrains. So the lacking of information for comparison,

lack of time & monetary problem will be the major limitations of this

research work. Lastly, there are many other factors which can be a

cause of babul and crash of stock market.

SIGNIFICANCE OF THE STUDY

This research has a number of implications on Bubbles and collapse of

Bangladesh stock Market. The unexpected rise and fall in share prices

mostly followed from the general confidence of the investors about

political stability, euphoria of investment in shares, prospect of quick

capital gains, a vacuum in respect of institutional presence in the share

market, monopolistic dominance of member brokers, inefficiency of the

SEC to cape with the developments, existence to kerb market, absence

of proper application of circuit breaker. The stock market is not free

from the problems, so the significances of the study are:

Price manipulation-It has been observed that the share values of some

profitable companies have been increased fictitiously some times that

hampers the smooth operation of stock market.

Delays in settlement: Financing procedures and delivery of securities

sometimes take an unusual long time for which the money is blocked

for nothing.

Irregulation in dividend: Some companies do not hold Annual General

Meeting {AGM} and eventually declared dividends that confused the

shareholders about the financial position of the company.

Selection of Membership: Some members being the directors of listed

companies of DES look for their own interest using the internal

information of share market.

Improper Financial Statement: Many companies of DSE and CSE do not

focus real position of the company as some audit firms involve in

corruption while preparing financial statements. As a result

shareholders as well as investors do not have any idea about position

of that company.

RECOMMENDATION

Some of the recommendations are given from our report analysis:

The government should relax IPO rules that is a company with at least Tk 25

crore in paid-up capital, including the IPO offer size, should be allowed for listing

on the exchanges in where the existing IPO (initial public offering) rules allow a

company having minimum Tk 40 crore in paid-up capital, including the IPO offer

size, to be listed on the exchanges. Many companies are interested to come to the

market, but cannot due to the IPO conditions. If the rules are relaxed, they will be

able to bring more new companies to the market that is now facing a dearth of

fresh securities.

The government in the proposed budget has doubled tax on brokerage

commission that may hurt the stockbrokers. Presently, the tax deductible at source

for brokerage commission of the stockbrokers is 0.05 percent, which has been

proposed to 0.10 percent. But the government could have increased the tax to

0.06-0.07 percent, with the trading volume on a continuous downslide following

the recent market catastrophe; it is not the right time to double the tax on

brokerage commission.

Government should make SEC accountable, transparent to restore the past glory

of the regulatory body through proper implementation of regulations on the basis

of morality. So the recommendation is that on restructuring the regulatory

framework could be formulated for ensuring a realistic, effective and stable

capital market so that both supply side and demand side constraints could be

addressed effectively.

According to the stock market scam probe report government should obviously

take actions against the culprits of the share market debacle.

Government should provide educational programs like various training session for

the small investors to increase their analytical ability before investing on share

market. Because small investors are the gin pig when the market crushes. To

avoid this they should participate the monthly awareness program which is

conducted by DSE. Experts stress that amateur investors need to be wiser and

tougher .SEC has also liability to arrange seminar and road show in different

branches of merchant banks and brokerage houses. SEC should initiate awareness,

educational and promotional programs through institutional training for a vibrant

market with active presence of issuers and investors.

Demutualization of a stock exchange transforms it from an entity owned by

mostly brokerage-owning members into a for-profit company owned by

shareholders. It ensures a sound corporate governance, alternative business

models and operational efficiency. A demutualized exchange can also freely trade

on the market like any other public company. Demutualization is a must to

increase transparency in the bourses functions.

It is obvious that all the stack holders, commercial banks, mutual funds, merchant

banks and mostly the retail investors who made up this capital market. Policy

coordination across finance ministry, central bank, SEC and parliamentary

standing committee is essential for the capital markets and the health of the

financial system It is the duty to government to make proper co-ordination among

these market players. The decision of Bangladesh Bank should not contradictory

to the investor’s part. Commercial banks should act more responsible to stabilize

the capital market with the help of Bangladesh Bank. These entire players should

act responsible behavior in proper guideline.

CONCLUSION

Current unsettled market environment is certainly not conducive for market development

and for small investors. All indicators are pointing to the conclusion that the stock prices

are generally over valued and a market correction to bring prices in line with economic

fundamentals of the companies would be desirable for future market development. When

foreign and domestic institutional investors are pulling out of the market and holding

large cash reserves for future investments, it is not the time for new and uninformed

investors to join the market.

The investment guru Warren Buffet has rightly characterized stock market frenzy in the

following manner in 2000: "The line separating investment and speculation is never

bright and clear ... becomes blurred still further when most market participants have

recently enjoyed triumphs. Nothing sedates rationality like large doses of effortless

money." It is thus imperative on the part of policy-makers to send clear warning signals

highlighting the heightened risks in order to protect ordinary investors.

Today's stock market is not as immature as it was in 1996. Nevertheless, when we see

small investors erecting road blocks and burning tires whenever stock prices come down

marginally, we have to believe that this market is being driven by mob frenzy.

When the great scientist Sir Isaac Newton lost a bundle with the bursting of the South Sea

Bubble, he observed that: "I can calculate the movements of stars, but not the madness of

men." If the madness in Bangladesh stock market continues for a few more months, the

bubble would become much bigger and it would explode like it did in 1996. We may still

have time, but the policy-makers would have to act now and in a concerted manner.