Determination of Stock Returns for Two Selected Pharmaceutical Companies in Chittagong Stock Exchange: A Time Series Analysis | Chapter 3 | An Overview on Business, Management and Economics Research Vol. 8

This study investigates the dynamics of the time varying volatility for selected two pharmaceutical companies(namely BEXIMCO and SQUARE pharmaceuticals) over the sample period. Pharmaceutical companies have been top performers in the healthcare sector in an era of aging populations, rising healthcare costs, and the ongoing development of new and extremely profitable medicines. Investors seeking to invest in the best pharmaceutical companies are faced with a wide array of publicly traded companies from which to choose. Generally the effective performance of stock market is one of the major indicators for economic development of a country. In this study, the daily log returns based on the daily total turnover values of 02 popular pharmaceutical companies namely BEXIMCO and SQUARE pharmaceuticals which are listed in Chittagong Stock Exchange have been analyzed.

 

Descriptive statistics, important graphs, statistical tests, fitted dynamic time series regression models with ARCH effect are used to complete the analysis. It is found that for both companies, the return occurs high with a high risk and risk is low for the companies with small amount of return. In general, SQUARE Pharmaceutical outperforms BEXIMCO Pharmaceutical in terms of gross return. The transformed variable log returns is utilized in the analysis to forecast the return for these two companies, even though the gross returns for both companies indicate non-stationarity. The white noise of this variable is normalized by the daily log returns of the two companies that were chosen. It is observed that the average VIF for both companies are less than 10, indicate the not severity of multicollinearity and can use these transform explanatory variables   ∆Yt, ∆2Yt, ∆Xt and ∆2Xt  in the model. Significant LM test statistic indicates the situation of having ARCH effect for the log return of both companies. Parkinson's monthly volatility of both companies also confers the conditional heteroscadisticity in the behavior of the residuals. The dynamic regression model with volatility regression of  ARCH (1)  and ARCH (2) are employed for the log return of BEXIMCO and SQUARE pharmaceutical respectively. A modified ARDL (2,2) regression model is proposed for forecasting the log return for BEXIMCO and SQUARE pharmaceuticals. The gross returns for both companies follow the non-stationary and the log returns for every company shows the random variation around zero implies the log return follows stationarity and this transformed variable is used in the analysis to predict the return for these two companies.

Author(s) Details:

Md. Rokonuzzaman,
Department of Statistics, University of Chittagong, Chattogram, Bangladesh.

Mohammad Akram Hossen,
Shanto-Mariam University of Creative Technology, Dhaka, Bangladesh.

Please see the link here: https://stm.bookpi.org/AOBMER-V8/article/view/13105