Does Share Price of Banking Industry Follow Stock Valuation Model? Bangladesh Setting

Abstract

Many factors and actors affect the market value of shares but this study is to investigate whether the share price of banking industry of Bangladesh follows any stock valuation models. Data were collected from the annual reports of selected 18 commercial banks listed in Dhaka Stock Exchange over the period of 2014-2018. Some stock valuation models such as ‘Variable Growth Model’, ‘Price Earnings Multiple Model’ and ‘Book Value Model’ have been applied to calculate the value of the share. Besides, ‘Gordon Model’ has been applied to calculate the ‘Require Rate of Return’ of equity. Moreover, ‘Kruskal-Wallis’ test has been applied to test whether the market value of share follow any stock valuation models. The study finds that the share price of banking industry of Bangladesh follows ‘Price Earnings Multiple Model’ as well as ‘Book Value Model’ but does not follow ‘Variable Growth Model’. On the basis of the findings, the study suggests that investors should consider stock valuation models to calculate value of the share before investing in banking sector.