Impact of firm specific variables on stock price volatility and stock returns of nepalese commercial Banks

Abstract

The financial sector of any country plays a pivotal role in the development process of each economy and economy depends on the growth of its financial sector. The key player of the financial sector is the capital market who provides an avenue to the users and providers of the financial resources for investment purposes (Menike et al., 2015). Stock exchange market has multiple roles in an economy. It provides companies with the facility to raise capital for expansion through selling shares, raising capital for businesses, mobilizing savings for investment, facilitating company growth, creating investment opportunities for small investors and etc. Stock return is very important as it is the main objective of investment in common stock. Investors regard return as the fundamental reason for investing in a particular firm. Stock return can be in form of capital appreciation/depreciation plus dividend received if any. Stock returns are the returns or gain that the investors generate out of the stock market. The most common way of generating stock market return is through trading in the secondary market. In the secondary market an investor could earn stick market return by buying a stock at lower price and selling it at a higher price (Idris and Bala, 2015). Stock prices are important metrics of measuring stock market return. Share prices are determined by demand and supply, which usually influence by firm specific factors and/or macroeconomic variables. Returns from investment are subjected to variations owing to the movement of stock price, which depends on various factors which could be internal or bank specific such as earning per share, bank size, and book to market equity (Shafana, 2013). The stock return is sensitive to number of bank specific factors such as earnings, dividends, risk, leverage, size, bookto-market ratio, right issue and bonus issues which explain the behavior of expected stock returns.