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Trends in Applied Sciences Research
Year: 2012  |  Volume: 7  |  Issue: 7  |  Page No.: 532 - 540

Estimating Stock Market Technical Efficiency for Truncated Normal Distribution: Evidence from Dhaka Stock Exchange

Md. Zobaer Hasan, Anton Abdulbasah Kamil, Adli Mustafa and Md. Azizul Baten    

Abstract: This study analyzes the technical efficiency of selected groups of companies of Bangladesh Stock Market that is Dhaka Stock Exchange (DSE) market using a stochastic frontier production function approach. This research considers Cobb-Douglas Stochastic frontier model with truncated normal distribution and both the time-variant and time-invariant inefficiency effects are estimated. The studied input variables-market return, market capitalization, book to market ratio and market value show significant relationship with the stock returns. The estimated average technical efficiency of DSE market is 95.42% of potential output for the truncated normal distribution over the period 2000-2008. The results show that technical efficiency gradually decreases over the reference period. The value of technical efficiency is high for investment group and low for bank group in time-variant situation whereas the value of technical efficiency is high for investment group also but low for ceramic group in time-invariant situation.

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