| Title : | Expected stock returns of NEPSE: evidence from Nepalese bank | | Material Type: | printed text | | Authors: | Dinesh Kiorala, Author | | Publication Date: | 2013 | | Pagination: | 111p. | | Size: | GRP/Thesis | | Accompanying material: | 1/B | | General note: | Including bibilography | | Languages : | English | | Descriptors: | Common stock
Investment
Nepal
Nepal Stock Exchange
Profits
Rate of return
Stock exchange
Stocks
| | Keywords: | 'stocks banks bank and banking profits common stock stocks nepal investment rate of return' | | Class number: | 332.642 | | Abstract: | The study on expected stock returns provides an important insight into the understanding of pricing implication of common stock. This study basically aimed at examining the variations in common stock returns with respect to firm specific variables and also attempted to evaluate the causal relationship between stock market returns and macroeconomic variables in Nepal. The specific objectives of the study are: (a) to examine the stock return in Nepalese stock market, (b) to analyze the factors that influence the stock return, (c) to examine the relationship between company specific variables and expected return, (d) to assess the impact of company specific variables on expected return on NEPSE and compare the results with the evidence of developed countries, (e) to analyze the views of chief executives, mangers, financial officer and operation officer regarding the level of stock return. The proposed study could be used by financial institutions, researchers, policy makers, and mangers to examine and understand behavior of stock return in context of Nepal.
Present study focused on the limitation as study includes only the selected commercial banks. Although this study used the earliest data available for the NEPSE, still had a work on a much smaller sample of returns as compared to the tests conducted on established markets such as the New York Stock Exchange or the Tokyo Stock Exchange? Hence, power of this study test may not be applicable all over the world.
The analysis of the one-way sort of portfolios on stock beta, size, earnings-to-price ratios, book to market ratio, and sales to price ratio shows that larger bank size, beta, book to market ratio, sales to price ratio have higher returns, where as the firms with higher earning to price ratio have lower returns. The results indicate that variability associated with stock returns is larger for the bank with larger size, higher stock beta, book to market ratio, sales to price ratio while it is lower for the banks with high earning to price ratios.
In a multiple regression of complete form, where all explanatory variables have been included, size, DY and BMR are found to have significant explanatory power while beta and EPR are not significant. The model's explanatory power is 80% and coefficient of Size and DY is positive. The regression estimates as well as portfolio analysis reveal that Size, DY and BMR are the three major variables, which explain the stock returns, and out of three variables, DY is the major explaining variable in the Nepalese stock market during the period of study.
The study results showed that the coefficient of beta is never significant and it does not explain variation of stock returns. Therefore, the chief executive, mangers and officers should not base their decisions on beta alone. They should consider multiple risk factors in their decisions, of which size; DY and BMR are the most dominant ones. As the study results revealed that since size is positively related to stock returns, the firms willing to increase stock returns should increase its size. Since DY, as shown by the study, is linear with stock returns, the firms should increase the DY to increase the stock returns. The study results illustrate that the firms willing to increase stock returns should maintain lower sales to price ratio as SPR is negatively related to stock returns. The study results revealed that since BMR is negatively related to stock returns, the firms should maintain lower BMR for higher stock returns. As the study results showed that the major decisions of finance is dividend to increase stock returns, therefore, the firms willing to increase stock returns should focus their decision on dividend.
With respect to decision priority to maximize return majority of the respondents gave the first priority to dividend decisions, second priority to investment decisions and third priority to financing decisions. So, the firms should increase the dividend to increase the stock returns. Majority of the respondents feel firm size of the bank as the most important factors influencing common stock returns in Nepal, followed by dividend yield.
In sum up, the major findings of this study can add value to the existing literature. It may help decision makers at bank to focus on major banking activities that may increase the stock return with other competitive banks. This may also help management of commercial bank in creating appropriate strategies for attaining the estimated stock return in context of Nepal.
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Expected stock returns of NEPSE: evidence from Nepalese bank [printed text] / Dinesh Kiorala, Author . - 2013 . - 111p. ; GRP/Thesis + 1/B. Including bibilography Languages : English | Descriptors: | Common stock
Investment
Nepal
Nepal Stock Exchange
Profits
Rate of return
Stock exchange
Stocks
| | Keywords: | 'stocks banks bank and banking profits common stock stocks nepal investment rate of return' | | Class number: | 332.642 | | Abstract: | The study on expected stock returns provides an important insight into the understanding of pricing implication of common stock. This study basically aimed at examining the variations in common stock returns with respect to firm specific variables and also attempted to evaluate the causal relationship between stock market returns and macroeconomic variables in Nepal. The specific objectives of the study are: (a) to examine the stock return in Nepalese stock market, (b) to analyze the factors that influence the stock return, (c) to examine the relationship between company specific variables and expected return, (d) to assess the impact of company specific variables on expected return on NEPSE and compare the results with the evidence of developed countries, (e) to analyze the views of chief executives, mangers, financial officer and operation officer regarding the level of stock return. The proposed study could be used by financial institutions, researchers, policy makers, and mangers to examine and understand behavior of stock return in context of Nepal.
Present study focused on the limitation as study includes only the selected commercial banks. Although this study used the earliest data available for the NEPSE, still had a work on a much smaller sample of returns as compared to the tests conducted on established markets such as the New York Stock Exchange or the Tokyo Stock Exchange? Hence, power of this study test may not be applicable all over the world.
The analysis of the one-way sort of portfolios on stock beta, size, earnings-to-price ratios, book to market ratio, and sales to price ratio shows that larger bank size, beta, book to market ratio, sales to price ratio have higher returns, where as the firms with higher earning to price ratio have lower returns. The results indicate that variability associated with stock returns is larger for the bank with larger size, higher stock beta, book to market ratio, sales to price ratio while it is lower for the banks with high earning to price ratios.
In a multiple regression of complete form, where all explanatory variables have been included, size, DY and BMR are found to have significant explanatory power while beta and EPR are not significant. The model's explanatory power is 80% and coefficient of Size and DY is positive. The regression estimates as well as portfolio analysis reveal that Size, DY and BMR are the three major variables, which explain the stock returns, and out of three variables, DY is the major explaining variable in the Nepalese stock market during the period of study.
The study results showed that the coefficient of beta is never significant and it does not explain variation of stock returns. Therefore, the chief executive, mangers and officers should not base their decisions on beta alone. They should consider multiple risk factors in their decisions, of which size; DY and BMR are the most dominant ones. As the study results revealed that since size is positively related to stock returns, the firms willing to increase stock returns should increase its size. Since DY, as shown by the study, is linear with stock returns, the firms should increase the DY to increase the stock returns. The study results illustrate that the firms willing to increase stock returns should maintain lower sales to price ratio as SPR is negatively related to stock returns. The study results revealed that since BMR is negatively related to stock returns, the firms should maintain lower BMR for higher stock returns. As the study results showed that the major decisions of finance is dividend to increase stock returns, therefore, the firms willing to increase stock returns should focus their decision on dividend.
With respect to decision priority to maximize return majority of the respondents gave the first priority to dividend decisions, second priority to investment decisions and third priority to financing decisions. So, the firms should increase the dividend to increase the stock returns. Majority of the respondents feel firm size of the bank as the most important factors influencing common stock returns in Nepal, followed by dividend yield.
In sum up, the major findings of this study can add value to the existing literature. It may help decision makers at bank to focus on major banking activities that may increase the stock return with other competitive banks. This may also help management of commercial bank in creating appropriate strategies for attaining the estimated stock return in context of Nepal.
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