Beruflich Dokumente
Kultur Dokumente
Subject: Submission of BBA research paper report title is “Average Return Volatility”
Sir,
I am pleased to submit my BBA research paper, titled- “Average Return Volatility between Categories
A&B at CSE.” as per your instructions. I assume that this report will provide comprehensive information
of how volatile the return with respect to Revenue, EPS, Risk and Total Equity at CSE.
I am thankful for your advising and mentoring guidelines throughout this research period you have
provided to me.
Regards
MD IMRAUL KAYES
BBA ID: 20058,
20th Batch, Section: A
1
Supervisor Certification:
This is certified that the present paper entitled “the average return volatility between categories
A&B at The Chittagong Stock Exchange Ltd” is an authentic work done by MD. IMRAUL
KAYES (BBA ID 20058) under my supervision and submitted to Department of Accounting &
Information systems, University of Dhaka for fulfillment of BBA program.
………………………….
Dr. MD. Sharif Hossain
Professor
Department of A&IS
University of Dhaka
2
Declaration by student:
This is MD. IMRAUL KAYES, hereby declare that the thesis paper entitled “Average Return
Volatility” presented here is my original work done by under the direct supervision of my
honorable teacher professor Dr. Md. Sharif Hossain. The data and information are seemed to be
authentic to the best of my knowledge. Any literature data and work done by other and cited within
this thesis paper is followed to conduct this paper and the acknowledgement given in reference
section. This paper is prepared only for department of A&IS, University of Dhaka.
……………………..
Md. Imraul Kayes
3
Acknowledgement
At first I would like to thank the almighty Allah, and then I want to express my gratitude to my
honorable supervisor Dr. Md. Sharif Hossain, Professor, Accounting & Information Systems,
University of Dhaka to give directions and inspiration to complete the study from the to the end. After
that I would cordially thank to my dear friend Saud Al Rafi who helped me to formulate the model.
Then I would like to thank the committee of research team. I would also express my respect and
heartiest love to my parents.
4
Average Return Gap between Categories A and B at the
Chittagong Stock Exchange Ltd.
5
Abstract:
Return gap among the categories of stocks plays an important role that affects the investment
decisions of individual investors. The present paper conducts the study on average return gap
between categories A&B at CSE. The empirical paper has been done by analyzing randomly
selected stocks from category A and all the stocks of category B at CSE (48 stocks from A, 17
stock from B). This study evaluates how stock market return volatility reacts with respect to
earnings per share, revenue, total equity and risk. This study has taken the data from the year of
2014. The current paper finds that earnings per share and revenue have the positive significant
impact on the stock return. Besides, total equity has positive insignificant impact, risk has negative
insignificant impact on return. Selecting and achieving a revenue target can make the stock market
more stable in term of returns.
Key Words: Return, EPS, Revenue, Risk, Volatility, and Equity.
6
Table of Contents:
Abstracts
Chapter One: Introduction
1.1 Introduction …………………………………………………...8
1.2 Objectives of the study ……………………………………….8
1.3 Organization of the study……………………………………...8
1.4 Scope for further study in the field…………………………….9
7
Chapter One: Introduction
1.1 Introduction:
Stock market consists of private savings and investments. Therefore, being one of the largest
places of investment, it may play a vital role in developing the efficiency of maximizing the wealth
of individuals. Thus the overall development of the economy depends on whether the stock market
is functioning well or not. But performance of stock market depends on how investors are reacting
with the changing environment of stock market. In Bangladesh, most of the investors are not aware
enough about the risk and return mechanism, volatility of market, categories of stocks etc.
Investors, in most of the cases, invest their savings in stock market. Sometimes they receive returns
from the investment, occasionally. Sometimes they lose all of their investments. Stock market
collapse is seen frequently in Bangladesh Stock Market. So, the burning questions are “why the
stock market is so volatile? Which factors are making it so volatile? There is no clearly stated
answer of these crucial questions. In Bangladesh, the answer is very much uncertain in some
context. This study has tried to find out how stock return volatility in Bangladesh is affected by
many factors such as Earnings per Share (EPS), Risk (beta), Total Equity and Revenue. This
present paper may be helpful for the existing investors, probable future investors, the policy
makers of different companies; to guide their individual decisions. This study may also be helpful
to know the risk and return relationship of stock to forecast the investment decisions of individuals.
This study shows that there is a gap of returns between categories A&B in The Chittagong Stock
Exchange Ltd (CSE).
: Chapter one is titled as Introduction which consists of three sub division namely- objectives of
the study, Organization of the study and finally the Scope of further research.
: Chapter two is titled as Literature Review which include the review of related literature,
arguments, and evaluation of related knowledge.
8
: Chapter three titled as Data Source. Details about source of used data and their calculation.
: Chapter four is methodology that describes the econometric model of calculation and evaluating
the obtain result.
: Chapter five titled as Conclusion which refers to discussion and recommendation.
This paper has been conducted based on sample data and the sample size is too small. So, there is
a scope for further research by using total population. The paper is based on cross sectional data.
This paper is prepared by selecting 48 sample of A categories and 17 sample of categories B at
The Chittagong Stock Exchange Ltd of the year of 2014. This is very difficult to comment about
national level. Due to lack of my capability and being inexperience, the research has been
conducted based on sample data.
9
Chapter Two
Literature Review
2.1 Introduction:
Plenty of Studies have been conducted to examine the relationship between Risk and Return.
Relationship between risk and return is a litigious issue. Many researchers have concluded their
recommendation that the relation between risk and return is positive in developed securities market
(Ex- Leon, Nave and Rubio, 2005). Many research papers have proved that there is a significant
negative correlation between risk and return especially in underdeveloped securities market (Ex-
Daniel Mwangi, 2015). Many papers show that the correlation between risk and return is positive
(Ex- Sharpe, 1965; Lundblad, 2007; Bali, 2008). On the contrary, many papers prove that there
is a negative correlation between risk and return (Ex- Mahmood and Shah, 2015; Armor and
Teece, 1978). Surprisingly, some papers show that there is a plane relationship between risk and
return (Fama & French, 1992). Most of the standard finance studies refers to a positive correlation
but many of them show the negative correlation. That is why, this study shows a combined result
to clarify the relationship between risk and return.
Pamane and Vikpossi (2014) explained that the relation between risk and return is not linear and
risks support the hypothesis that the relation between expected return and risk is linear.
Tah (2013) carried out a result to test the relationship between volatility and returns in two
emerging stock markets namely- Nairobi Securities Exchange (NSE) and Lusaka Stock Exchange
(LSE) for the period from 1997 to 2012. The relation between conditional mean and variance is
negative and statistically significant at Lusaka Stock Exchange (LSE); whereas, there is no
significant relationship between returns for Nairobi Securities Exchange (NSE).
Leon, Nave and Rubio (2005) used Mixed Data Sampling to examine the trade-off between risk
and expected returns in several European stock indices. It was found that, in most of the indices
there was a significant positive relationship between risk and expected returns.
Bello and Adedokun (2011) analyzed the relationship between risk and return in Nigerian Stock
Market for the quoted firms. This study went through the risk-return volatility for the period of
2000-2004 of the quoted firms of Nigeria. This study used Ordinary Least Square Method to to
estimate the regression with a view to obtain the beta (systematic risk) of each of the firm. Besides
10
market model was used to calculate returns of the firms. This study said that the betas varied
positively with the return size.
Almost all of the literatures mentioned above are based on how the return and risk react to each
other assuming all other things remain equal. Whether investors should take more risk in order to
receive more return or investors should be risk averse. The main objective of this study to identify
why the relationship between risk and return varies and what are the factors that influence the
relationship.
11
Chapter Three:
Data Source and Some Descriptive Statistics
3.1 Data Source:
To conduct the study, data have been collected from several sources. All of the data and calculation
have been collected and evaluated from secondary data source. For example, market return
(RETN) has been calculated from the market price of stock [(closing price – opening
price)/opening price]. The market price of stocks has been collected from The Chittagong Stock
Exchange Ltd. Revenue (REV), Earnings per Share (EPS), Total Equity (EQI) have been collected
from the annual reports of corresponding companies (for the year ended 2014; 2013/14). Risk
(BET) has been calculated from return on market index (CSEX) and return on market stock of the
same year (2014). First, this study has calculated the return of stock and the return from market
index. Secondly, calculating the covariance of both return and variance of return from market
index. Finally, by dividing those covariance by the variance this study has found the risk. Beta=
[(cov Rm, Rs)/var(Rm)]. Dummy variable 1 stands for category A, and 0 stands for category B.
This paper has calculated the index return on monthly basis.
3.2 Descriptive statistics:
*EQI= Total Equity; **REV= Net Revenue; ***EPS= Earnings per Share; ****8BET= Risk; *****RETN= Return of Stock
To conduct the study we have observed 65 companies’ stocks at CSE. Total equity lies between
BDT 265912 million to BDT -247.7 million with the mean and standard error of BDT 11689.81
million and BDT 33836.37 million respectively.
In this paper, net revenue of selected companies lies between BDT 103000 million to BDT 23.4
million with the mean and standard deviation of BDT8485.022 million and BDT 17920.2 million
respectively.
In case of EPS, the maximum range is BDT 104.7 and minimum range is BDT -3.33 with the mean
of BDT 7.908 and the standard deviation of EPS is BDT 16.
In case of Beta (Risk), it lies between 2.09 to -1.3 with the mean and standard deviation of 0.823
and 0.7167 respectively.
In case of return of stock the maximum limit is 78% and the minimum limit is -63% with 2.9%
mean and with 89.84% standard deviation.
12
Chapter Four: Methodology
4.1 Methodology:
According to these empirical models, return is affected by the variables shown in these following
equations:
Let us define,
Here,
1. Dependent variable: RETN
2. Independent variable: EQI, REV, EPS, BET, D01
𝐶𝑃−𝑂𝑃
RETN= *100
𝑂𝑃
Here,
CP refers to closing price of the stocks.
OP refers to opening price of the stocks.
13
EQI (Total Equity):
Total equity has been calculated by subtracting Total Liabilities from Total Assets.
EQI= TA-TL
BET (Risk):
Beta refers the systematic risk that affect the investors’ decisions. Beta has been calculated by
dividing the covariance of market return and index return by variance of index return.
𝑐𝑜𝑣 (𝑝,𝑞)
Beta (βp) =
𝑣𝑎𝑟 (𝑞)
EPS (Earnings per Share):
EPS refers to how much a company earns against its outstanding share. EPS reveals the
performance of company. EPS has been calculated by dividing net income by number of
outstanding share.
𝑁𝐼
EPS=
𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑆ℎ𝑎𝑟𝑒
At first the models have been established by using the OLS. OLS refers Ordinary Least Square
method that estimates the relationship between one or two independent variable and dependent
variable. We have to prove that model will satisfy all Gauss Markov assumptions. Here variance
of the random error terms will remain constant (Homoscedasticity) and there is no relation among
the random errors terms (serial correlation). Meaning var (ϵi)= 0, cov (ϵi, ϵj)=0 for all i and j. when
i=1,2,…….n; j=1,2,…….k)
14
Sample: 1 65
Included observations: 65
Prob(F-statistic) 0.000717
As per OLS result the study has found that if the investors don’t consider the effect of the result
of independent variables (EQI, REV, EPS, RISK) on the dependent variable (RETN) then the C
will remain -6.916751, that means the intercept of this regression is α= -6.916751.
.
When the companies consider beta with respect to RETN remaining other factors constant, then
the RETN is decreased by -2.48 unit, with per unit increase in beta. Because slope
(β4) = -2.480122. It indicates the negative relationship between risk and return.
When the companies consider EPS with respect to RETN remaining other factors constant, then
the RETN is increased by 0.740747 unit, with per unit increase in EPS. Because slope (β3) = 0.
740747 here the leverage positively correlated impacts the RETN.
When the companies consider REV with respect to RETN remaining other factors constant, then
the RETN is increased by 0.000366 unit, with per TK increase in REV. Because slope (β2) =
0.000366. It refers that REV has a little or insignificant effect on RETN.
When the companies consider the relation of EQI with respect to RETN remaining other factors
constant, then the RETN will affected by 3.64E-05 unit, with per unit increase in EQI. Because
15
slope (β1) = 3.64E-05.
When the investors consider the categories of the share it is shown that the average return gap
between categories A&B at CSE. Which is referred by β5= 3.48
So, it is to be said that the REV, EPS, EQI has the positive correlation with return on stock, but
sign of beta and market has the negative impact on market return meaning the
more the market risk the more the market return which is against the standard finance.
But under the OLS method, it has been observed that co-efficient of determent (r square) is
0.296772 that means the goodness of fit of this model is below standard. As we know the result
of R-squared close to 1 refers the best fit of goodness of the model. Again, here the adjusted R-
squared value is below the R-square =0 .237177 (adjusted R-squared< R-squared) which
doesn’t represent the dependent variable, that means the independent variables do not properly
explain the dependent variable.
Here the Observed R-squared is 5.406215, and the prob. Chi-squared is 0.4296 that is
greater than 0.05 or 5%. This indicates there is no similarity of data used in this model.
16
4.5.2 CUSUM Test:
17
Chapter Five: Conclusion
5. Conclusion:
The research has found that revenue volatility, earnings per share volatility have significant positive
impact on stock return volatility. Hence, investors should look at the eps and revenue figure in
financial statements of the desired/targeted company(s). Because this paper has seen higher return
volatility positively depends on earnings per share (eps) and revenue. If this happens the demand of
the stocks will be rising. In that case, the investors who are willing to make capitalist gain, can get
capital gain by trading the stocks in secondary stock markets like DSE, CSE. This paper also finds that,
average return volatility between category A and B is 3.45% which is not an unimportant issue. So,
investors should be very careful about taking decision while making investment decision in stock
market. Companies should concentrate on maximizing their revenue and minimizing the expenses
that lead to higher earnings per share. These two variables increase the share prices so that investors
can earn from stock market. Thus, a favorable situation exits in stock markets that leads to socio
economic development of Bangladesh.
Empirical evidence shows that, “Development of a capital market is essential for economic
growth ( Ashaolu and Ogunmuyiwa, 2011).
18
References:
Bello, A., & l. (2011). Analysis of the Risk-Return Characteristics of the Quoted Firms in the
Nigerian Stock Market. International Journal of Business and Social Science Vol. 2No. 17.
https://www.unilorin.edu.ng/publications/lawalwa/.
Fama, E. F., & French, K. R. (2004). The Capital asset Pricing Model: Theory and Evidence.
Journal of Economic Perspectives-Volume 18, Number 3-summer 2004-Pages 25-46.
http://www.personal.umich.edu/kathrynd/JEP.FamaandFrench.pdf
Mwai-Ireri, W. (2014) review of the NSE 20 Shares Index Constituent Counters. Nairobi
Securities Exchange ltd. http://fib.co.ke/wp-content/uploads/2014/06/Review-of-NSE-20-Share-
Index-Press-Release.pdf.
Hossain and Abedin, JEFS (2017)05(04), 01-11 https://dx.doi.org/10.18533/jefs.v5i04.292
19
Appendices:
Name Equity(in mill BDT) Revenue(in mill BDT) EPS(in BDT) Opening price(P0) Closing price(p1) Return
ABBANK 18759 6459 2.81 26.8 30 0.119402985
AFTABAUTO 5039 2710 4.01 89.7 67.1 -0.251950948
APEXFOOT 3809 11464 18.05 434.3 437 0.006216901
BANKASIA 16602 3205 2.64 21.8 16.9 -0.224770642
BATABD 2571 8077 51.22 691 1143.8 0.6552822
BENGALWTL 2050 920 3.05 63.3 58 -0.083728278
BERGERPBL 3355 10881 47.33 860 1417 0.647674419
BXPHARMA 20920 11207 4.15 46.9 59.1 0.260127932
BRACBANK 19288.5 8682 2.96 32 37.3 0.165625
BSRMSTEEL 8769 38571 3.63 69 88.2 0.27826087
CITYBANK 22307 5058 2.05 19.9 21.8 0.095477387
DHAKABANK 12973 2864 3.69 19 18.1 -0.047368421
DBBL 14517 8334 11.03 108.1 104.8 -0.03052729
FUWANGFOOD 839 794 0.71 23.8 24 0.008403361
GP 31365 103000 14.67 202.7 360.9 0.78046374
IBNSINA 679 2679 5.95 105.1 97.8 -0.069457659
ICB 30829 3696 8.55 1360 1425 0.047794118
IDLC 6528 6546 6.19 74.7 67.9 -0.09103079
IFICBANK 11897 3405 4.71 34 26.3 -0.226470588
IBBL 46613 58047 2.48 34.4 23.8 -0.308139535
JAMUNAOIL 11898 1471 23.08 200.3 207 0.033449825
KOHINOOR 237 2961 13.2 383.5 376.3 -0.018774446
LANKABD 6223 5100 0.99 69.5 44 -0.366906475
MARICO 1706 6435 43.99 780 1105 0.416666667
NAVANACNG 1929 1606 3.3 64.8 65.2 0.00617284
PADMAOIL 7291 1838 21.66 274.2 251.3 -0.083515682
SUMITPOWER 20805 6109 3.61 38.5 38.1 -0.01038961
TITASGAS 52557 78321 10.38 73.3 79 0.077762619
PROVATIINS 381 118 2.81 20 28.3 0.415
OLYMPIC 2522 7922 5.87 147.1 226.4 0.539089055
BATBC 11463 35642 104.7 1600 2561.3 0.6008125
RSRMSTEEL 1744 4767 5.24 52.5 57.7 0.099047619
SQUAREPHARMA 26749 23268 10.26 191.6 259 0.35177453
SQUARETEXT 6507 8110 5.47 91.1 90.9 -0.00219539
GPHISPAT 1923 4687 2.35 51.5 46 -0.106796117
AMCL(PRAN) 487 1727 6.93 186.1 189.7 0.019344438
ORIONINFU 166 657 3.64 40.8 42.7 0.046568627
20
MEGHNACEM 812 3739 4.48 141 119 -0.156028369
ARGONDENIM 2235.5 2521 3.6 86.4 41.8 -0.516203704
ANWARGALV 107 134 0.5 30.7 40 0.302931596
BAYLEASING 2841 122 1.06 39.7 29.9 -0.246851385
APEXFOOD 562 3845 2.99 93 93.6 0.006451613
CONFIDCEM 2898 3635 5.32 124.6 106.8 -0.142857143
DESCO 11296 24725 1.94 58.2 69.3 0.190721649
NPOLYMAR 440 1488 3.09 55.2 66.7 0.208333333
UNIONCAP 1807 572.5 1.65 34.6 20.5 -0.407514451
UCB 265912 7956 4.42 25.3 29.2 0.154150198
SIBL 12143 4936 2.71 13.2 13.6 0.03030303
AZIZPIPES -246.7 307 1.32 21 22 0.047619048
BDAUTOCA 20.88 75 0.06 37.6 37.6 0
BDTHAI 2456.6 656 1.54 30.5 46.5 0.524590164
BEACONPHR 2867 1690 0.1 13.1 17.8 0.358778626
FAMILYTEX 3933 3277 3.28 58.3 21.7 -0.627787307
CVOPRL 184.5 110 -3.33 562.8 508.5 -0.096481876
FAREASTFIN 2081 444 1.93 17 16 -0.058823529
FASFIN 1625 294 1.22 15.1 18.8 0.245033113
FEDERALINS 736 93.5 1.09 25 16.9 -0.324
FINEFOODS 129.6 23.4 -0.48 23.5 11.1 -0.527659574
ILFSL 2156.5 410 0.74 15.9 13.6 -0.144654088
MHSML 1139 982 2.13 39 28 -0.282051282
MIRACLEIND 354 459 0.24 19.3 16.1 -0.165803109
MONNOCERA 2278 692 0.11 33.5 28.7 -0.143283582
PENINSULA 3688 420 2.7 23 27 0.173913043
SAFKOSPINN 542 357 1.16 29.7 28.1 -0.053872054
SALOVOCHEM 542 225 1.09 24.8 20.7 -0.165322581
21
Test Equation:
Dependent Variable: RESID^2
Method: Least Squares
Date: 01/31/18 Time: 14:17
Sample: 1 65
Included observations: 65
22
Autocorrelation Test
Test Equation:
Dependent Variable: RESID
Sample: 1 65
Included observations: 65
Prob(F-statistic) 0.999980
23
Descriptive Statistics:
24
25
26