{"title":"Testing the Validity of Arbitrage Pricing Theory: A Study on Dhaka Stock Exchange Bangladesh","authors":"Syed Md. Khaled Rahman, Priyanka Mazumder","doi":"10.18488/JOURNAL.89.2021.71.16.25","DOIUrl":null,"url":null,"abstract":"The purpose of the study was to test the validity of Arbitrage Pricing Theory (APT) in Dhaka Stock Exchange (DSE) of Bangladesh. Secondary data has been used which was composed of observable macroeconomic and stock market variables. Study period was from January 2013 to October 2018, making a total of 70 monthly observations. Study found that interest rate and exchange rate has significant influence but market capitalization and tax rate have insignificant impact on return of DS-30 index. Except exchange rate, other three variables were negatively related with DS-30 index return. 1% increases in exchange rate results 0. 993% increase in stock prices while 1% increases in interest rate results 0. 486% decrease in stock prices and vice-versa. Strong negative correlation was seen between interest rate and stock index return. APT have failed to fully explain the change of DS-30 index return due to presence of two insignificant explanatory variables. This research has practical implications on stock market participants as investors’ optimal strategy largely influence d by precision of asset pricing models. This research has also policy implications for Securities & Exchange Commission, government, and other regulators as findings of the study will assist them to develop more efficient capital market. study existing literature of asset judging its reliability Bangladeshi study of Arbitrage in stock return. tested the validity of APT in Karachi Stock Exchange of Pakistan using four macroeconomic factors and listed firms’ stocks that was since return did not deviate from","PeriodicalId":282667,"journal":{"name":"Financial Risk and Management Reviews","volume":"18 1","pages":"0"},"PeriodicalIF":0.0000,"publicationDate":"1900-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"2","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Financial Risk and Management Reviews","FirstCategoryId":"1085","ListUrlMain":"https://doi.org/10.18488/JOURNAL.89.2021.71.16.25","RegionNum":0,"RegionCategory":null,"ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"","JCRName":"","Score":null,"Total":0}
引用次数: 2
Abstract
The purpose of the study was to test the validity of Arbitrage Pricing Theory (APT) in Dhaka Stock Exchange (DSE) of Bangladesh. Secondary data has been used which was composed of observable macroeconomic and stock market variables. Study period was from January 2013 to October 2018, making a total of 70 monthly observations. Study found that interest rate and exchange rate has significant influence but market capitalization and tax rate have insignificant impact on return of DS-30 index. Except exchange rate, other three variables were negatively related with DS-30 index return. 1% increases in exchange rate results 0. 993% increase in stock prices while 1% increases in interest rate results 0. 486% decrease in stock prices and vice-versa. Strong negative correlation was seen between interest rate and stock index return. APT have failed to fully explain the change of DS-30 index return due to presence of two insignificant explanatory variables. This research has practical implications on stock market participants as investors’ optimal strategy largely influence d by precision of asset pricing models. This research has also policy implications for Securities & Exchange Commission, government, and other regulators as findings of the study will assist them to develop more efficient capital market. study existing literature of asset judging its reliability Bangladeshi study of Arbitrage in stock return. tested the validity of APT in Karachi Stock Exchange of Pakistan using four macroeconomic factors and listed firms’ stocks that was since return did not deviate from