Methodology Secondary data and information were used in preparing this seminar paper, and hose were collected through teamwork by adopting the following processes: * Visiting the website of followings: Dacha Stock Exchange (DES) Dacha Chamber of Commerce (DDCD) Bangladesh Bank (B) Monetary Policy Department (MID), B * Consulting books from different libraries of: Bangladesh Institute of Development Studies (BIDS) Dacha Chamber of Commerce (DDCD) Bangladesh Bank (B) Other Books Limitation of the study The vast majority of efficient market research to date has focused on the major United States and European securities market.

Far fewer have investigated the evolving and less developed countries markets; and no study on this area has been performed on the Dacha Stock Exchange (DES). The study seeks evidence There was a little scope for research on this crucial subject as all the data was secondary and no way to collect primary data was available. Lack of a wide coverage due to time constraint. We did not have much time to visit all the relevant places and meet respective personnel. Only secondary data was used, but there is no alternative of primary data to en-sure the accuracy and effectiveness of the study.

They include the commercial banks, save-ins and loan associations, credit unions, mutual saving banks, finance houses, insane companies, merchant bankers, discount houses, venture capital companies, leasing companies, investment banks & companies, investment clubs, pension funds, stock ex-changes, security companies, underwriters, portfolio-managers, and insurance comma-nines. Functions The functioning of an efficient capital market may ensure smooth floatation of funds from the savers to the investors. When banking system cannot meet up the total need for funds to the market economy, capital market stands up to supplement.

To put it in a single sentence, we can therefore say that the increased need for funds in he business sector has created an immense need for an effective and efficient capital market. It face-litotes an efficient transfer of resources from savers to investors and becomes conduits for channeling investment funds from investors to borrowers. The capital market is required to meet at least two basic requirements: (a) it should support industrialization through savings manipulation, investment fund allocation and maturity transformation and (b) it must be safe and efficient in discharging the aforesaid function.

It has two segments, namely, securities segments and non- securities segments. Importance of Capital Market in the economy countries in fact, view capital market as the engine for future growth through mobile-ins of surplus fund to the deficit group. An efficient capital market may perform as an alternative to many other financing sources as being the least cost capital source. Esp.-socially in a country like ours, where savings is minimal, and capital market can no won-deer be a lucrative source of finance.

The securities market provides a linkage between the savings and the preferred in- vestment across the business entities and other economic units, specially the general schoolhouse that in aggregate form the surplus savings units. It offers alternative in- vestment windows to the surplus savings units by monopolizing their savings and chance-likes them through securities into optimal destinations. The stock market enables all individuals, irrespective of their means, to share the increased wealth provided by competitive enterprises.

Moreover, the stock market also provides a market system for purchase and sale of listed securities and thereby ensures liquidity (transferability of securities), which is the basis for the Joint stock enterprise system. The existence of the stock market makes it possible to satisfy simultaneously the needs of the firms for cap-ITIL and of investors for liquidity. ) Especially at times when the banking sector of the country is facing the challenge of bringing down the advance-deposit ratio to sustain-able level, the economy of the country is unfolding newer horizon of opportunities.

Due to over-exposure level of the financial system the securities market could play a very positive role, had there been no market debacle. Due to the last market crash and follow through events, it will be difficult to utilize the primary market to raise significant vow-lump of funds. Thus the greatest economic importance of securities market at this point can be understood from the opportunities being lost. Bangladesh having its target to become a middle income country must have significant level of rise in investment, which at the present state of banking system cannot be met.

The securities market could play the key role in meeting these huge investment demands if the secondary market would remain stable. The capital market also helps increase savings and investment, which are essential for economic development. An equity market, by allowing diversification across a variety of assets, helps reduce the risk the investors must bear, thus reducing the cost of cap-tall, which in turn spurs investment and economic growth. However, volatility and mar-get efficiency are two important features which will ultimately determine the effect-tipsiness of the stock market in economic development.

If a stock market is inefficient due to insufficient informational supply, investors face difficulty in choosing the optimum-al investment as information on corporate performance is slow or less available. The resulting uncertainty may induce investors either to withdraw from the market until this uncertainty is resolved or discourage them to invest funds for long term. Moreover, if investors are not rewarded for taking on higher risk by investing in the stock market, or if excess volatility weakens investor’s confidence, they will not invest their savings in the stock market, and hence deter economic growth.

The emerging stock markets offer an opportunity to examine the evolution of stock return distributions and stochastic processes in response to What is the Efficient Market Hypothesis? In 1953 Maurice Kendall published a study in which he found that stock price movements followed no discernible pattern, that is, they exhibited no serial correlation. Prices were as likely to go up as they were to go down on any given day, irrespective of their movements in the past. These results lead to the question of what, exactly, influenced stock prices.

Past performance obviously did not. In fact, had this been the case, investors could have made money easily. Simply building a model to calculate the probable next price movement would have enabled market artisans to gain large profits without (or with reduced) risk. On the other hand, if everybody could have done so, stocks that were about to rise would have risen instantly, because large numbers of investors would have wanted to buy them, while those holding the stock would not have wanted to sell.

This mechanism suggests that the market “prices in” the performance data that is already available about a stock. Definition of Market Efficiency The concept of efficiency adopted for this thesis is one regarding the incorporation of information into security prices. Generalizing from the results of the above paragraph leads to the proposition that any available information which could influence a company’s stock performance should already be reflected in said company’s stock price.

In an efficient market, therefore, security prices should equal the security’s investment value, where investment value is the discounted value of the security future cash flows as estimated by knowledgeable and capable analysts. Under this definition, the one thing that can still influence stock prices is new information. When new information about a company becomes available, the above recess makes stock prices move immediately to reflect the new situation.

Naturally, this new information needs to be unpredictable; otherwise the prediction about the new information (which is itself a piece of information) would already have caused share prices to change. These considerations suffice to formulate the efficient market hypothesis. In its original postulation, it stated that “an efficient market is one in which stock prices fully reflect available information. “Later texts have weakened this definition to allow for prices to be sufficiently different from full-information prices for investors to come informed.

A good description of market efficiency and the underlying mechanics is the one by Costner (1964): force up the prices. The reverse would be true for sellers. Except for appreciation due to earnings retention, the conditional expectation of tomorrows price, given today’s price, is today’s price. In such a world, the only price changes that would occur are those that result from new information. Since there is no reason to expect that information to be non- random in appearance, the period-to-period price changes of a stock should be random movements, statistically independent of one another. In a perfect market, these criteria are obviously fulfilled. In such a market transactions and information are costless, implying that market participants have full information and can react to news without incurring costs. Nevertheless, while perfect markets are a sufficient assumption for market efficiency, they are not a necessary condition. The Three Forms of Market Efficiency In economic and financial theory a distinction is made between three forms of market efficiency. The basis of this separation is what is meant by the term “all available information”.

Each stronger form of efficiency incorporates all weaker forms of efficiency. In weak-form efficient markets stock prices reflect market trading data and information derived from it. Examples of market trading data are past prices, volume or short interest. This data is generally easily available and, according to this theory, should therefore be reflected in current prices. If weak-form efficiency holds, stock prices should be composed only of three components – the last period’s price, the expected return on the stock and a random error term which has an expected value of zero.

Semi strong-form efficient markets reflect all publicly available information influencing the company’s value in stock prices immediately. Above and beyond the acquirement of weak-form efficiency, in this model data about the firm’s products, operations, balance sheet, patents, etc. Is priced in. Including information which is only known to company insiders. This definition implies that these insiders, who are privy to information before it becomes known to the rest of the market, also cannot earn any excess profits.

In theory, if these individuals tried to trade on their information, the market would recognize the attempt and prices would adjust before the trade could go through. In practice, the insider trading rules of the SEC and similar regulatory bodies aim at preventing insiders from profiting from their superior knowledge by prohibiting insider trading for said individuals, their relatives and anybody who is supplied with their information.

In the academic community there are also proponents of the view that, if insider information is not available to investors, strong-form efficiency can be considered to hold regardless of whether the availability of insider information would lead to excess returns. 14 Strong-form efficiency, naturally, is the most contested of the three models. For it to hold, weak and semi strong-form efficiency have to hold first.

In the stock market, a securities price tends to move rise and fall depending mainly on the availability of he Information. The stock prices In the efficient market correspond to available information and therefore register any rise or fall mainly when recent and unpredictable information is available. The up and down in the security prices largely depends upon the advantages and disadvantages associated with the available information and to what extent it will affect the company’s performance which is represented by the security.

As it is very difficult to tell whether the information available Is useful or not, in the same way it is quite Impossible to make redactions about the trend of the stock market, such that whether there will be an upward or downward trend in the near future by using the available information. In the financial market it is not mandatory that all professionals related to market always possess the information about the securities and have skills to evaluate this information for their gain.

The only thing the efficient market requires is that few individuals must have the Information about securities and as a result of the information supplied by them, the whole market must be well Informed and benefited. Hence the available Information plays an Important role In determining the efficiency of the stock market. By focusing on the above idea, the concept of Efficient Market Hypothesis has been developed and became one of the most concentrated and debatable topic among professionals and people related to finance and stock market studies.

In other words, in an efficient market at any point in time the actual price of a security will be a good estimate of its intrinsic value. “(Eugene F. Fame 1965) According to the Efficient Market Hypothesis, given by Fame, the ups and downs in the prices of securities in the financial market totally reflect known information at a specified period of time. In other words, Efficient Market Hypothesis states that the raiding of securities by the individuals is always carried out purely based on the assumption that securities worth are always more or less than the price offer by market.

Whereas, trading of securities trying to outperform the stock market will be luck instead of professional skills if current prices fully reflect all available information as well as stock markets are efficient. According to this hypothesis “if new information is revealed about a firm it will be incorporated into the share price rapidly and rationally, with respect to the direction of the share price movement and the size of that movement. (Learn’ -Nettle) .

Efficiency is an unclear word in itself so for more clarification, in my dissertation, I will describe all types of efficiencies: operational, allocation and pricing. I will also give full detail on levels of market efficiency : weak-form efficiency, semi-strong form efficiency and strong-form efficiency. According “Random walk theory there are no trends and format that are being followed by the prices of securities in stock market. There is another fact given by this theory which says that the prices of securities in the past can not be useful for future predictions and fluctuation in prices.

The Efficient Market Hypothesis and anomalies related to the stock market developed by the researchers always contrasts with each other. “The search for anomalies is effectively the search for systems or patterns that can be used to outperform passive and/or buy-and-hold strategies. ” (Invest Home). With the invention of any anomaly, there is always a kind of exploitation by the investors of the anomalies discovered in order to increase their profit. This practice make the anomaly disappear with the passage of time.

There are so many internal and external factors of the entities that affects the operations of tock market and those factors are often known as Anomalies which plays an important role in over performing or under performing the operations of the stock market by taking into consideration the fact that these anomalies have good or bad effect on the prices of stocks and entities. There are different types of anomalies and some of the anomalies are discussed.

Fundamental Anomalies: First type of anomaly is fundamental anomaly which basically depends upon the price of the stock and on the past performance of the entity due to which stock prices rises or fall. Several anomalies of these kinds exist related to the growth, present alee and profitability of the companies concerned. Under fundamental anomaly, there exist a most historical and famous anomaly named “Value investing” and is regarded as the most appropriate strategy for investment purposes. These anomalies prices go up or down. A technique used is to divide the given index into high price and low price to book value stocks.

The low price to book concept was developed by Eugene Fame and Kenneth French favoring the hypothesis that lower risk is attached to value stocks whereas the stocks with growth are attached with higher risk. According to another anomaly named as low price to sales, stocks with low price to sales ratio perform better then high price to sales ratio. According to James P. O’ Gaucheness, prices are the only strongest determinant of excessive return. There are several studies which advocates that stocks having low PIE ratio always perform better in the market as compared to stocks with high PIE ratios.

In the same manner, the stocks with high dividend yield are better performers than stocks with low dividend yields. There are some other stocks named as neglected stock and are chosen by those with the concentration strategy. A study was conducted by F. M Debonair Richard Thales on 35 best and worst performer stocks between 1932 and 1977 in New York Stock Exchange and came out with the result that the performance of best performer stocks in the stock exchange falls whereas the stocks with bad performance in the past showed better results when compared to the results of the same stock in the past.

Technical Anomalies: Another types of anomalies in which past prices and statistics are used to predict the prices of securities are known as technical anomalies. The techniques used in these types of anomalies include strategies related to support and resistance, moving averages and strength. Some researchers are against the method of technical analysis and say that the investors are hardly benefited from these technical analysis techniques where as some researchers argue that there is enough evidence and facts that are sufficient to say that the technical analysis method is favorable for the investors.

According to technical analysts, the selling of stocks is influenced by the resistance level whereas the buying is influenced at the support level. A signal to sell the stock is developed in case the support level is penetrated by the price whereas a signal to buy the stock is produced in case price penetrated the resistance level. According to the conclusion made by William Brock, Josef Allocation, and Blake Lebanon, the outcomes are reliable with technical rules having forecasting power. But at the same time the cost related to transaction must be taken into account before implementing such concepts and strategies.

Another conclusion given by them says that the stock returns generating is more complicated and different process as compared to the results obtained by conducting different studies and researches sing various linear models. Calendar Anomalies: Calendar anomaly is another type of anomaly in which various effects are included. In January effect, general and small stocks perform abnormally better in the month of January. Philippe Jargon and Robert Hagen say that, “the January effect is, perhaps the best-known example of anomalous behavior in security markets throughout the world. An interesting fact about January effect is that it lasted for nearly two decades whereas any anomaly hardly survive as traders start taking advantage of the anomalies which results in vanishing of anomaly. Another effect named Turn of the Month was founded by Chris R. Hansel and William T. Zambia, according to which, in between period 1928 to 1993, the returns for the turn of the month performed well investors who make regular purchases may be benefited if they make schedule to do the purchasing at the end and prior to the starting of next month.

In addition to these effects another effect is known as Monday effect and is considered to be the worst day in stock market if investments are made on this day. According to study conducted by Lawrence Harris, the week end effect occurs during first 45 minutes of eying and selling whereas prices shows upward trend during the first 45 minutes of trading on all other days. This kind of anomaly may occur due to moods and behavior of people after weekend holidays. Other Anomalies There are certain other facts that are responsible for affecting the operations of stock market.

The size effect, announcement based effect, Ipso, Stock buybacks, insider transactions and S and P game. According to Fame and French (1992), the book to market ratio as well as the size capture the cross-sectional variation of average stock returns in NYSE, and NASDAQ securities. A complete investigation of book to market was provided by Tim Laughlin in relation to dimensions of firm size, exchange listings etc and experimental findings of French and Fame are basically forwarded by two features of the data which includes relatively low returns on small, new and growing stocks.

Carnivals Nipping, Augustine C. Arise study three main US corporate bond market indices by taking into account calendar based anomalies between the years 1982-2002. In the analysis, the whole bond market as well as two broad classes of industries namely industrials and utilities were taken into account. The study find he mixed response for the weekend effect in the overall bond index and industrial index whereas very less response to utilities index. The findings showed definite proof of January effect on the bond market.