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Stock Market Crash of Bangladesh in 2010-11: Reasons & Roles of Regulators

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Stock Market Crash of Bangladesh in 2010-11: Reasons & Roles of Regulators Stock market crash of Bangladesh in 2010-11: Reasons & roles of regulators Sangit Saha Degree Thesis Förnamn Efternamn International Business 2012 DEGREE THESIS Arcada Degree Programme: International Business Identification number: 11497 Author: Sangit Saha Title: Stock market crash of Bangladesh in 2010-11: Reasons & roles of regulators Supervisor (Arcada): Andreas Stenius Commissioned by: Abstract: The aim of the thesis is to determine reasons of the stock market crash in Bangladesh in 2010-11 and roles of the regulators and government since the crash took place. The theoretical background of the study includes brief introduction of Bangladesh stock market with its structure and different regulatory and intermediary organizations. It also describes one international stock market crash and stock market crash of Bangladesh in 1996. For the theoretical part investigation report of Khondkar Ibrahim Khaled is used as the main secondary resource. The report helps to get background of the crash with reasons and role of different regulatory and intermediary organizations. Self-administered questionnaire is used to obtain primary data for the study. The author sent 25 questionnaires to employees of broker houses and general investors but 18 replied. The result of the Self-administered questionnaire helped author to find some other reason behind the stock market crash in addition with reasons provided in the investigation report. Moreover, the result shows developments of market by the regulators and government since the crash. Finally, the author makes recommendation to the regulators, government and investor. Keywords: stock market, Bangladesh stock market crash, regulators, DSE, CSE, SEC Number of pages: 62 Language: English Date of acceptance: Table of Contents Acknowledgement ......................................................................................................... 7 1. Introduction ........................................................................................................... 8 1.1 Background ............................................................................................................................ 9 1.2 Motivation behind choosing the topic ..................................................................................... 10 1.3 Thesis aim ........................................................................................................................... 10 1.4 Research question ................................................................................................................. 11 1.5 Research method and data ..................................................................................................... 11 1.6 Limitations ........................................................................................................................... 12 2. Stock market and crash ............................................................................................ 12 2.1 What is a stock market? ........................................................................................................ 12 2.2 What is a stock market crash? ................................................................................................ 13 3. Bangladesh Stock Market ......................................................................................... 13 3.1 History of Bangladesh stock market ....................................................................................... 13 3.2 Dhaka Stock Exchange (DSE) ............................................................................................... 14 3.3 Chittagong Stock Exchange (CSE) ......................................................................................... 16 3.4 Structure of Bangladesh Stock Market .................................................................................... 17 3.5 Settlement ............................................................................................................................ 17 3.6 Security & Exchange Commissions (SEC) .............................................................................. 18 3.7 Central Depository Bangladesh Limited (CDBL) .................................................................... 19 4. Stock Market Crashes .............................................................................................. 20 4.1 Stock Market Crash of 1987 .................................................................................................. 20 4.1.1 Background of the crash ................................................................................................. 21 4.1.2 Timeline of the crash ...................................................................................................... 22 4.1.3 Reasons behind the crash ............................................................................................... 24 4.2 Stock market crash of Bangladesh in 1996 .............................................................................. 26 4.2.1 Background ................................................................................................................... 26 4.2.2 Reasons......................................................................................................................... 27 4.2.3 Steps taken .................................................................................................................... 28 5. Stock Market Crash of Bangladesh in 2010-11 .......................................................... 29 5.1 Root of bubble...................................................................................................................... 29 5.2 Time of historical fall ............................................................................................................ 31 5.2.1 December 2010.................................................................................................................. 31 5.2.2 January 2011 ..................................................................................................................... 34 5.3 Factors contributed to the crash .............................................................................................. 36 6. Methodology ........................................................................................................... 42 6.1 Approach of the study ........................................................................................................... 42 6.2 Source of data and method .................................................................................................... 42 6.2.1 Primary source .............................................................................................................. 43 6.2.1.1 Self-administered questionnaire ................................................................................... 43 6.2.2 Secondary Source .......................................................................................................... 45 6.2.2.2 Investigation report ..................................................................................................... 46 6.2.2.3 Data of indices ............................................................................................................ 46 6.2.2.4 Past researches ........................................................................................................... 46 6.2.2.5 Newspaper, Journal and other sources .......................................................................... 46 6.3 Reliability and Validity ......................................................................................................... 47 6.4 How the research was conducted ............................................................................................ 47 7. EMPIRICAL RESEARCH ....................................................................................... 48 7.1 Result and discussion ............................................................................................................ 48 7.2 To the regulators................................................................................................................... 55 7.3 To the government ................................................................................................................ 55 7.4 To the investor ..................................................................................................................... 56 8. Conclusion ............................................................................................................... 57 List of References ........................................................................................................ 59 Appendix ..................................................................................................................... 63 List of Figures Figure 1 – 2010 country Stock market performance Figure 2: Figure 2: S&P 500 index around the time of crash Figure 3: Figure 3: DGEN Graph Figure 4: DSE daily DGEN index of December, 2010 Figure 5: CSE daily CASPI index of December, 2010 Figure 6: Daily DGEN index of January, 2011 Figure 5: CSE daily CASPI index of January, 2011 ABBREVIATIONS BO = Beneficiary Owners DSE = Dhaka stock exchange CSE = Chittagong stock exchange SEC = Security and exchange commission CDBL= Central depository Bangladesh limited BB = Bangladesh Bank AGM = Annual general meeting DVP = delivery versus payment CEO = Chief Executive Officer IPO = Initial public offerings DGEN = DSE
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