An empirical investigation of the arbitrage pricing theory in a frontier stock market: evidence from Bangladesh

FARUQUE, MUHAMMAD U (2011): An empirical investigation of the arbitrage pricing theory in a frontier stock market: evidence from Bangladesh. Published in: Indian Journal of Economics and Business , Vol. 10, No. 04 (1 December 2011): pp. 443-465.

Abstract

Although the existing literature of Arbitrage Pricing Theory (APT) on different categories of stock markets is vast, it is non-existent in the case of frontier stock markets (defined as very small capital markets). This paper fills this gap by investigating how APT performs in a frontier stock market. To address the common problem of multi-collinearity in macro variables, this study uses principal component analysis (PCA) as a robustness check on the previous results. The results confirm evidence of one significant macroeconomic factor in the Dhaka stock market - a frontier stock market of Bangladesh. This result is comparable to that of some emerging (larger than frontier markets) stock markets.

• Item Type: MPRA Paper
• English Title: An empirical investigation of the APT in a frontier stock market
• Language: English
• Keywords: Key words: Arbitrage pricing theory (APT), Capital-asset pricing model, Dhaka stock exchange (DSE), Principal component analysis, Principal components (PC), Efficiency market hypothesis (EMH) and Chen, Roll and Ross (CRR)
• Subjects: G - Financial Economics > G1 - General Financial Markets > G12 - Asset Pricing ; Trading Volume ; Bond Interest Rates; G - Financial Economics > G1 - General Financial Markets > G11 - Portfolio Choice ; Investment Decisions; G - Financial Economics > G3 - Corporate Finance and Governance > G32 - Financing Policy ; Financial Risk and Risk Management ; Capital and Ownership Structure ; Value of Firms ; Goodwill; G - Financial Economics > G1 - General Financial Markets > G10 - General; G - Financial Economics > G2 - Financial Institutions and Services > G24 - Investment Banking ; Venture Capital ; Brokerage ; Ratings and Ratings Agencies

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