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Capital Market Liquidity and Exchange Rate: a Case Study of Dhaka Stock Exchange

Badiuzzaman
Professor
Department of Agricultural Economics and Rural Sociology, Patuakhali Science and Technology University, Patuakhali.

Abstract/ Executive Summary:

This Study investigates the significant relationship between capital market liquidity and exchange rate taking monthly data of Dhaka stock exchange (DSE) during 2004-2009. Linear regression analysis has been used to explain the corresponding change of capital market liquidity due to change in exchange rate. The study reveals the positive relationship between exchange rate and capital market liquidity in concurrent, lagged, and lead forms. It was found that a considerable variation in liquidity is explained by exchange rate of DSE in Bangladesh.

Keywords: Exchange rate, liquidity, stock exchange

Location:

Start Date: 00-00-2004

End Date: 00-00-2009

Program Area: Socio-economic and Policy

Non-commodity: Profitability

Objectives:

To measure the stock market liquidity of Dhaka Stock Exchange (DSE);
To observe the trend of liquidity and exchange rate (Tk/$) over the year; and
To explore the relationship between capital market liquidity and exchange rate.

Methodology:

A proper methodology is always necessary for a successful accomplishment in any research work. It helps to organize and modernize the experiences, observations, examinations, analysis of data and information and their logical interpretation through a systematic process to achieve the ultimate goal and objectives of the study. Between the two major capital market of Dhaka and Chittagong, DSE was purposively selected for the study because it is the largest capital market in Bangladesh and effectiveness of this market primarily determines the success and failure of the national economy. Monthly data on turnover, market capitalization and exchange rate have been collected from the official website of Dhaka Stock Exchange and the corporate webpage of Bangladesh Bank. The collected data were complied chronologically in statistical tables. Any study regarding stock market liquidity starts with a problem of choosing an appropriate proxy of liquidity. For analyzing the data several statistical tools like mean, standard deviation, maximum, minimum, standard error, CV, regression and correlation coefficient have been used in this study. All the data were entered in the table of the SPSS (Statistical Package for Social Science) and thereby the regression equation and correlation coefficient was developed. The other statistical measures like mean, standard deviation, CV, standard error were determined with the help of MS Office Excel.

Source of Information: J. Patuakhali Sci. and Tech. Univ. 2010, 2(1):119-124

Article Link (Online Journal):

Funding Source:

Total Budget (Tk.) :

Achievement/Findings:

Exchange rate and capital market liquidity almost go with similar manner. Exchange rate has very low or insignificant impact on capital market liquidity.

Knowledge Management: Journal