Rewards and Risks in Stock Markets
The study involves insights into returns provided as well as a summary of South Asia’s stock exchange risk behavior. The article aims at establishing whether there has been a significant difference on the risk and returns associated with the stock market over time. The study finally attempts to make a suggestion regarding the stock market that provides profitable avenue among the SAARC nations. The study also makes use of descriptive statistics such as average annual return, mean percent return, standard deviation, maximum and minimum return, skewness, Jarque Bera statistic and Kurtosis for the six series stock exchanges, namely: Dhaka Stock Exchange (Bangladesh), Nepal Stock Exchange (Nepal), National Stock Exchange (India), Colombo Stock Exchange (Sri Lanka), Karachi Stock Exchange (Pakistan) and Maldives Stock Exchange (Maldives). According to the research, the most preferred potential avenues to the global investors include Sri Lanka and Bangladesh due to their relative economic and political systems, which are relatively stable besides offering high return and relatively reasonable risk.
For investment decisions to be made, it is a must to have risk-return analysis. Investors make various financial instruments considerations based on investment objectives and their risk-bearing capacity. In the financial market, risk can be been classified as systematic and unsystematic. According to the study, all stock exchanges do not offer same returns worldwide. Even in similar stock markets, some securities outperform the market, whereas others are at par with the index. The main objectives of this study were to have an understanding of the South Asian stock markets return and risk behavior, finding out if there is any significant difference between the returns and risk involved in the stock markets under study and offering suggestion on the best stock market for investors. There have been various studies across the world concerning return and risk with the majority being undertaken in the developed countries such as Germany, USA, France, Australia and Europe yet very few focus on stock markets in Asia. As a result, there has been mixed results. In the empirical literature as well as different data analysis methods, there have been a study of various markets and conclusions from the researchers differ from each other.
The main source of data collected was from secondary sources such as South Asian Federation of Exchanges, Google Finance, Bloomberg and Yahoo Finance. However, there were missing values in the data because (in some days) some of the stock exchanges were open while others were not open. The missing values were filled up through averaging. The study made use of numerous research tools such as descriptive statistics, and the paper tries to infer stock exchanges movement pattern. Computation of returns can be done through taking log of series. The paper makes a presentation of the descriptive statistics for the six series; the study makes a presentation of basic data in order to have an insight into the given data. There is a presentation of median, mean, maximum level, minimum level variance and standard deviation of indices under reference. In order to have a closer look at annual return and risk at stock exchanges that were under study, there was use of tables in presenting annual returns descriptive statistics.
There was an observation that, in 2008, there was a negative mean daily percentage return. The other years showed mixed results with some showing positive returns while others showed negative returns (Sharma & Bodla, 2012). Standard deviation analysis and the coefficient of variation of the South Asian nations over time show that Maldives had the most volatile stock exchange. In addition, the study checked if there was any significant difference in returns, in the stock exchanges that were under study. The analysis was taken on a yearly basis as well as the entire period of study, and there was an application of one-way Anova for the purpose. From the study, different returns can be offered empirically by different stock exchanges. The reference period for this study was between 1st July 2004 and 30th June 2010. It observed that there were maximum annualized returns by Colombo, National and Dhaka Stock Exchanges of 20.3, 20.6 and 25.8% respectively. Similarly, the variation coefficient and standard deviation for the three exchanges were low (Sharma & Bodla, 2012). There were favorable return and risk for SAARC nation’s exchanges, and they emerged to be more rewarding compared to the developed markets’ stock exchanges based on risk and return. Stock exchanges belonging to Sri Lanka, India and Bangladesh have been rewarding heavily and tend to be less risky for investors. However, after looking at variables such as economic policies and political stability of the three countries, an investor can make a choice among them.
After factoring in these variables for the purpose of providing investor with information, a conclusion can be made concerning the potentially preferable avenue to the global investors in India. India Stock exchange offers high returns together with reasonable low risk coupled with economic and political policies that are consistent. Sri Lanka and Bangladesh are a good investment avenues due to their relative stable economic and political systems besides reasonable risk and high return that they offer.
Reference
Sharma, G. D., & Bodla, B. S. (2012). Rewards and Risks in Stock Markets: A Case of South
Asia. The International Journal of Applied Economics and Finance 6.2 , 37-52. Retrieved from http://web.b.ebscohost.com/abstract?direct=true&profile=ehost&scope=site&authtype=c awler&jrnl=19910886&AN=83851294&h=Qc76STsWZlbH73U0ky8pE7%2fZ7gy4nFIg WzsmmtQmjk1kN4agcIqi7GZ9usfPoPRm%2fK9JKaWOtUUmuN9zodqs2g%3d%3d& rl=c
