Problems of Stock Markets on Bangladesh
Autor: Stella • April 7, 2011 • Essay • 1,414 Words (6 Pages) • 4,062 Views
The unexpected rise and fall in share prices mostly followed from the general confidence of the investors about political stability, euphoria of investment in shares, prospect of quick capital gains, a vacuum in respect of institutional presence in the share market, monopolistic dominance of member brokers, inefficiency of the SECS to cape with the developments, existence to Kerb market , absence of proper application of circuit breaker etc. Delivery versus payment mechanism was used as one of the main vehicles of manipulation. Kerb market gave birth fake and forged share certificates. Although there are increasing trends in all the indicators, DSE, CSE are not free from problems, The problems of DSE, CSE may be summarized as under:
Market manipulation has been less thoroughly examined in the academic literature but is a growing concern on many emerging stock markets. The possibility that the markets can be manipulated is an important issue for both the regulation of trading and the efficiency of the market. Security regulators generally prohibit market manipulations on the basis that they distort prices, hamper price discovery, and create deadweight losses. It has been observed that the share values of some profitable companies has been increased fictitiously some items that hampers the smooth operation of Stock market.
In modern financial markets, manipulations are often done in hidden ways that cannot be easily detected and outlawed. While manipulative activities seem to have declined on the main exchanges, it is still a serious issue in the Bangladesh's capital market. Although several theories on stock market manipulation have been investigated, empirical evidence about stock manipulation is still scarce. When investigating the possibility of a manipulation, there are many signs that may indicate whether price rigging has occurred.
The sudden debacle in the stock market in Bangladesh is definitely a result of market manipulation which has left general investors with a great loss of their invested capital even there were warning signs in the market before the crash which were not been grasped by the general investors.
Lack of knowledge
Most of the investors in Bangladesh have a very little knowledge about Stock market. Most of them take their investment decision based on rumor. Since stock market is not a place of gambling, rather it's a place of knowledge based game. So many of them have to return home with a great loss & create unexpected rampage in the street before stock exchanges. Investment decisions should be based on the analysis about EPS, PE Ratio, Retain Earnings, Future Prospects, Sensitivity to Climate Change etc. So to know about capital market is necessary for any kinds of investment.
Unusual trend of the investors
Some investors invest in some companies, whose have no production, growth even near to shut down. This activity misguides other investors. They are also in confusion to take their decisions. It has been observed that, the price of some company's share increased consecutively for three to four weeks without any reasonable reasons. At that time other investors started to purchase that share with a high price & within a few days they face losses. These types of unusual trends should not be beneficial for a capital market.
Lapses of supervisory actions
Securities & Exchange Commission is the apex body for supervisory activities. But the SEC fails to take some necessary actions, measures in time. The SEC can't identify the speculative transactions and the person(s) behind it. Every investor's information in detail should be kept by the SEC & exchange companies. There should be a declaration of the sources of fund, nature of their future transactions in the BO account opening form. But till now the SEC doesn't make any rule in this regard. Capping of change in market price of a stock is also important to prevent unusual price hike or less.
Improper financial statement
Some of the listed companies submit their improper financial report to SEC & Other supervisory authority. In these report it has been showed that the company incur losses in order to not to pay any profit to their shareholders. As a result, the price of that company falls and some other purchase those shares being informed by the insiders. The reverse case also misleads the investors in taking their decisions. Many companies do not focus real position of the company as some audit firms involve in corruption while preparing financial statements. As a result the shareholders as well as investors do not have any idea about position of that company.
The intrinsic values for securities traded are sometimes estimated without considering the current market prices of the securities.
The absence of comprehensive legal and supervisory framework.
Lack of skilled manpower as well as financial and non-financial institutions involved