Unveiling Economic Dynamics: Exploring the Dhaka Stock Market’s Response to the 1996 Catastrophe
Bangladesh stock market has experienced a severe bubble in 1996 followed by a crash. This study has examined the relationships between the stock market and the economy during this catastrophe i.e. during bubble and meltdown stages of the market. Monthly time series data of six macroeconomic variables; industrial production index, interest rate, consumer price index, exchange rate, money supply and gold price, which might have impact on future dividends and/or the discount rate from the perspective of Bangladesh economy, have been considered to represent the state of economy. This study has used the macroeconomic version of the semi strong Efficient Market Hypothesis (EMH) and macro variable model of the Arbitrage Pricing Theory (APT) to investigate the aforesaid relationships using sophisticated econometric tools – such as Vector Autoregression, Johansen and Juselius Cointegration, and Autoregressive Distributed Lag (ARDL) model. The research findings indicate that during the bubble period, economic indices exhibit stronger explanatory power compared to the meltdown period.
