African Journal of Business Management Vol. 5(22), pp. 8891-8901, 30 September, 2011 Available online at http://www.academicjournals.org/AJBM DOI: 10.5897/AJBM11.313 ISSN 1993-8233 ©2011 Academic Journals
Full Length Research Paper
Measuring Dhaka stock exchange market efficiency: A stochastic frontier analysis Md. Zobaer Hasan1, Anton Abdulbasah Kamil1 and Azizul Baten2* 2
School of Distance Education, Universiti Sains Malaysia, 11800 USM, Penang, Malaysia. Department of Statistics, School of Physical Sciences, Shahjalal University of Science and Technology Sylhet-3114, Bangladesh. Accepted 26 May, 2011
This study measures the status of technical efficiency of companies in Dhaka stock exchange (DSE) for panel data using the stochastic frontier production function, incorporating technical inefficiency effect model. For this study, we used the data collected from DSE market consisting 94 companies in Bangladesh for the period of 2000 to 2008. It was observed that the inefficiency increased over the reference period and translog production function was more preferable than Cobb-Douglas production function. This study showed that the estimated year-wise average efficiency of companies in DSE market was 0.8782 while group-wise average efficiency was 0.8571. At the company group level, GroupA companies was most efficient than the other two groups. The most efficient company was ICB and the most inefficient company was Bextex limited. Key words: Stochastic frontier model, translog production, stock market efficiency, Dhaka stock exchange, panel data. INTRODUCTION Recently, Dhaka stock exchange has taken significant steps towards the development of its capital market. It is the main stock exchange of Bangladesh so we concentrated on the DSE, which is the country’s oldest stock exchange, and according to Standard and Poor's Emerging Stock Markets Factbook (2000), the DSE is one of the frontier emerging markets of South Asia. By improving the technical efficiency of DSE market, it can play the desired role in the process of economic development of the country. In DSE, several studies have been conducted for market efficiency. Alam et al. (1999) studied the market efficiency of the DSE. Mobarek et al. (2000) sought evidence supporting existence of at least weak-form efficiency of DSE. Chowdhury et al. (2001) investigated the mean daily returns of DSE around the turn of the week, turn of the month, turn of the year, and around the holidays. A study by Ahmed (2002) revealed that the behavior of stock prices could not be described as obeying the random walk theory rather they follow some dependencies. Hassan and Maroney (2004) examined the issue of nonlinearity and thin trading as a test for market efficiency in the context of Bangladesh. Stock market economy is currently progressing rapidly due to the economical boost on South Asian region (Mursalin et al., 2006). Uddin and Alam (2007) examined 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 least square (OLS) regression. Uddin and Yasmin (2008) sought evidence supporting the existence of market efficiency in the DSE market. Researchers investigated technical efficiency of financial institutions used either methods, parametric Stochastic frontier approach (SFA) or non-parametric Data envelopment analysis (DEA) in abroad (Berger and Humphrey, 1997). There have been a number of studies, which have compared parametric and non-parametric techniques to examine efficiency of financial institutions, for example, for banking industry (Ferrier and Lovell, 1990; Pastor et al., 1997; Resti, 1997; Bauer et al., 1998; Berger et al., 2000; Altunbas et al., 2001; Maudos et al., 2002; Weill,
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2004); for the...
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APPENDIX List of companies considered in this study
List of company’s name AB Bank City Bank IFIC Bank Islami Bank NBL Uttara Bank Eastern Bank Al-Arafah IB ICB IDLC United Leasing Uttara Finance 1stICB M.F. 2nd ICB M.F 3rd ICB M.F. 4th ICB M.F. 5th ICB M.F. 6th ICB M.F. 7th ICB M.F. 8th ICB M.F. 1st BSRS Aftab Automobiles Olympic Industries Bangladesh Lamps Eastern Cables Monno Jutex Monno Stafllers Singer Bangladesh Atlas Bangladesh BD.Autocars Quasem Drycells National Tubes Bd. Thai Aluminium Anwar Galvanizing Kay & Que National Polymer Apex Foods Bangas BATBC National Tea AMCL (Pran) Rahima Food BOC Padma Oil Co. Saiham Textile Desh Garmants Bextex Limited Serial number 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 List of company’s name Apex Spinning Delta Spinners Sonargaon Textiles Prime Textile H.R. Textile Ambee Pharma Beximco Pharma Glaxo SmithKline ACI Limited Renata Ltd Reckitt Benckiser The Ibn Sina Beximco Synthetics Libra Infusions Square Pharma Imam Button Samorita Hospital Eastern Housing Heidelberg Cement Confidence Cement Meghna Cement Aramit Cement Apex Tannery Bata Shoe Apex Adelchy Footwear Monno Ceramic Standard Ceramic BGIC Green D. Ins. United Ins. Peoples Ins. Eastern Ins. Janata Ins Phoenix Ins Eastland Ins Central Ins Karnaphuli Ins Rupali Ins Federal Ins Reliance Ins Purabi G.Ins Pragati Ins. Aramit GQ Ball Pen Usmania Glass Savar Ref. BEXIMCO Serial number 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94
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