This paper empirically tests the autocorrelation structure in return series of Dhaka Stock Exchange (DSE) in the framework of feedback trading behavior of noise traders. The daily return series of DSE General Index and DSE 20 Index have been used to capture the effect of non-synchronous trading and the effect of feedback trading. While DSE General return series is expected to have high non-synchronous trading induced autocorrelation, DSE 20 return series is expected to show a high feedback trading led autocorrelation. The results support for the existence of positive feedback trading in DSE. However, feedback trading does not have asymmetric effect on DSE return series in up and down market, suggesting that bad news and good news do not have differential effect on the conditional variance of DSE return series. Thus linking the observed autocorrelation structure in return series to feedback trading behavior of irrational investors, this study concludes that the return autocorrelation and the inefficiency in DSE do not imply abnormal profit opportunities. It has important implications for other inefficient and emerging markets in that inefficiency in the form of return predictability in those markets may not imply abnormal profit opportunities.
|Number of pages||15|
|Journal||International Review of Business Research Papers|
|Publication status||Published - 2013|