Stock Market Crash in Bangladesh: The Moneymaking Psychology of Domestic Investors

Md. Tahidur Rahman; Syed Zabid Hossain; Md. Habibullah

doi:doi:10.11648/j.ajtab.20170303.12

| Peer-Reviewed

Stock Market Crash in Bangladesh: The Moneymaking Psychology of Domestic Investors

Md. Tahidur Rahman, Syed Zabid Hossain, Md. Habibullah

Published in American Journal of Theoretical and Applied Business (Volume 3, Issue 3)

Received: 9 July 2017 Accepted: 23 August 2017 Published: 12 September 2017

Views: Downloads:

Download PDF

Share This Article

Twitter
Linked In
Facebook

Abstract

After the cruel crash in 1996 Bangladesh stock market had started growing from 2006 due to listing of a few profitable government entities and Multinational Companies (MNCs). Together with individual investors nearly all commercial banks involved themselves intensely in stock market. Step by step, the bullish market transformed into a bubble and on December 05, 2010, the Dhaka Stock Exchange General Index (DGEN) reached at the record high of 8918.5, almost 5.6 times higher than December 2006. Concurrently, market capitalization and turnover increased by 11.1 times and 61.7 times respectively. However, when the bubble burst on December 19, 2010 the DGEN witnessed its biggest one day fall of 6.7 percent and since then the market has become bearish with almost no positive movement of stock prices. Against this backdrop, this study identified four moneymaking psychologies of domestic investors specifically greed, envy, speculation, and overconfidence that contributed to the formation of bubble, while four loss-minimizing and capital-protecting psychologies such as panic, frustration, lack of self-confidence, and distrust caused the bubble to burst. The bankers, brokers and manipulators were the biggest gainers, whereas the most unaware and greedy small investors encountered heavy loss. The market will be less volatile, more mature, and sustainable when most of the investors will be conscious about the potential risks and returns and the regulators will play their part sincerely and efficiently.

Published in	American Journal of Theoretical and Applied Business (Volume 3, Issue 3)
DOI	10.11648/j.ajtab.20170303.12
Page(s)	43-53
Creative Commons	This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.
Copyright	Copyright © The Author(s), 2017. Published by Science Publishing Group

Keywords

Dhaka Stock Exchange, Stock Market Crush and Bubble, Moneymaking Psychology

References

[1]	Abdullah, M. N., Parvez, K., & Khaled, M. (2012). Is the stock market overvalued: A study in the context of Bangladesh? Asian Business Review, 1 (1), 30-36.
[2]	Acharya, V., & Naqvi, H. (2011). Bank liquidity and bubbles: Why central banks should lean against liquidity. Bubbles and Macroprudential Regulation (April 2011). Loyola University.
[3]	Ahmed, G. T. (2013, April). Market PE hits nine-year low. The Daily Star.
[4]	Akerlof, G. A., & Shiller, R. J. (2009). Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism. Princeton and Oxford: Princeton University Press.
[5]	Baker, M., & Wurgler, J. (2007). Investor sentiment in the stock market. Journal of Economic Perspectives, 21 (2), 129-151.
[6]	Caginalp, G., Porter, D., & Smith, V. (2001). Financial bubbles: Excess cash, momentum, and incomplete information. Journal of Psychology and Financial Markets, 2 (2), 80-99.
[7]	Chirinko, R. S., & Schaller, H. (2001). Business fixed investment and "bubbles": The Japanese case. American Economic Review, 91 (3), 663-680.
[8]	Choudhury, M. A. (2013). Stock market crash in 2010: An empirical study on retail investor’s perception in Bangladesh. ASA University Review,, 7 (107-21).
[9]	Estrada, J. (2005). Adjusting P/E ratios by growth and risk: The PERG ratio. International Journal of Managerial Finance, 1 (3), 187-203.
[10]	Evanoff, D. D., Kaufman, G. G., & Malliaris, A. G. (2012). Asset price bubbles: What are the causes, consequences, and public policy options? Chicago: The Federal Reserve Bank.
[11]	Goodfellowa, C., Bohla, M. T., & Gebkab, B. (2009). Together we invest? Individual and institutional investors' trading behaviour in Poland. International Review of Financial Analysis, 18 (4), 212–221.
[12]	Huang, J. Y., Shieh, J. C., & Kao, Y.-C. (2016). Starting points for a new researcher in behavioral finance. International Journal of Managerial Finance, 12 (1), 92 - 103.
[13]	Jewel, M. N. (2012, October Tuesday). Share market crash and the reasons behind the disaster. The Financial Express, 20 (157).
[14]	Kahneman, D., & Tversky, A. (1979). Prospect theory: An analysis of decision-making under risk. Econometrica, 47 (2), 263–291.
[15]	Kallinterakis, V., Munir, N., & Radovic-Markovic, M. (2010). Herd behavior, llliquidity, and extreme market states: Evidence from Banja Luka. Journal of Emerging Market Finance, 9 (3), 305–324.
[16]	Khaled, K. I. (2011). Share market inquiry committee, 2011. Dhaka: Ministry of Finance, The Peoples' Republic of Bangladesh.
[17]	Kindleberger, C. P., & Aliber, R. Z. (2005). Manias, panics, and crashes: A history of financial crises (5th Edition ed.). Hoboken, NJ: John Wiley & Sons.
[18]	Leijonhufvud, C. (2007). Financial globalisation and emerging markets volatility. The World Economy, 30 (12), 1817–42.
[19]	Long, J. B., Shleifer, A., Summers, L. H., & Waldmann, R. J. (1990). Noise trader risk in financial markets. The Journal of Political Economy, 98 (4), 703-738.
[20]	McDermott, R. (1998). Risk-taking in international politics: prospect theory in American foreign policy. Michigan: The University of Michigan Press.
[21]	Michailova, J., & Schmidt, U. (2016). Overconfidence and bubbles in experimental asset markets. Journal of Behavioral Finance, 17 (3), 280-92.
[22]	Ngoc, L. T. (2014). Behavior pattern of individual investors in stock market. International Journal of Business and Management, 9 (1), 1-16.
[23]	Rahman, M. T., & Moazzem, K. G. (2011). Capital Market of Bangladesh: Volatility in the Dhaka Stock Exchange (DSE) and Role of Regulators. International Journal of Business and Management, 6 (7), 86-93.
[24]	Rappoport, P., & White, E. N. (1993). Was there a bubble in the 1929 stock market? The Journal of Economic History, 53 (3), 549-574.
[25]	Scheinkman, J. A., & Xiong, W. (2003). Overconfidence and speculative bubbles. Journal of Political Economy, 111 (6), 1183-1219.
[26]	Schnabl, G., & Hoffmann, A. (2008). Monetary policy, vagabonding liquidity and bursting bubbles in new and emerging markets: An overinvestment view. The World Economy, 1226-1252.
[27]	Shefrin, H. (2006). Beyond greed and fear: Understanding behavioral finance and the psychology of investing. Oxford University Press.
[28]	Shiller, R. J. (2003). From Efficient Market Theory to Behavioral Finance. Journal of Economic Perspective, 17 (1), 83-104.
[29]	Shleifer, A., & Summers, L. H. (1990). The noise trader approach to finance. Journal of Economic Perspective, 4 (2), 19-33.
[30]	Shleifer, A., & Vishny, R. W. (1997). The limits of arbitrage. The Journal of Finance, 52 (1), 35-55.
[31]	Tana, L., Chiangb, T. C., Masonb, J. R., & Nelling, E. (2008). Herding behavior in Chinese stock markets: An examination of A and B shares. Pacific-Basin Finance Journal, 16 (1-2), 61–77.
[32]	Waweru, N. M., Munyoki, E., & Uliana, E. (2008). The effects of behavioural factors in investment decision-making: A survey of institutional investors operating at the Nairobi Stock Exchange. International Journal of Business and Emerging Markets, 1 (1), 24–41.
[33]	University of Florida. (2014). What are the characteristics of an economic bubble? Retrieved March 20, 2017, from www2.mae.ufl.edu/~uhk/BUBBLE-CHARACTERISTICS.pdf
[34]	Yao, S., & Luo, D. (2008). Chinise stockmarket bubble: Inevitable or incidental?
[35]	Yao, S., & Luo, D. (2009). The economic psychology of stock market bubbles in China. The World Economy, 667-691.

Cite This Article

Plain Text BibTeX RIS

APA Style

Md. Tahidur Rahman, Syed Zabid Hossain, Md. Habibullah. (2017). Stock Market Crash in Bangladesh: The Moneymaking Psychology of Domestic Investors. American Journal of Theoretical and Applied Business, 3(3), 43-53. https://doi.org/10.11648/j.ajtab.20170303.12

Copy | Download

ACS Style

Md. Tahidur Rahman; Syed Zabid Hossain; Md. Habibullah. Stock Market Crash in Bangladesh: The Moneymaking Psychology of Domestic Investors. Am. J. Theor. Appl. Bus. 2017, 3(3), 43-53. doi: 10.11648/j.ajtab.20170303.12

Copy | Download

AMA Style

Md. Tahidur Rahman, Syed Zabid Hossain, Md. Habibullah. Stock Market Crash in Bangladesh: The Moneymaking Psychology of Domestic Investors. Am J Theor Appl Bus. 2017;3(3):43-53. doi: 10.11648/j.ajtab.20170303.12

Copy | Download

@article{10.11648/j.ajtab.20170303.12,
  author = {Md. Tahidur Rahman and Syed Zabid Hossain and Md. Habibullah},
  title = {Stock Market Crash in Bangladesh: The Moneymaking Psychology of Domestic Investors},
  journal = {American Journal of Theoretical and Applied Business},
  volume = {3},
  number = {3},
  pages = {43-53},
  doi = {10.11648/j.ajtab.20170303.12},
  url = {https://doi.org/10.11648/j.ajtab.20170303.12},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ajtab.20170303.12},
  abstract = {After the cruel crash in 1996 Bangladesh stock market had started growing from 2006 due to listing of a few profitable government entities and Multinational Companies (MNCs). Together with individual investors nearly all commercial banks involved themselves intensely in stock market. Step by step, the bullish market transformed into a bubble and on December 05, 2010, the Dhaka Stock Exchange General Index (DGEN) reached at the record high of 8918.5, almost 5.6 times higher than December 2006. Concurrently, market capitalization and turnover increased by 11.1 times and 61.7 times respectively. However, when the bubble burst on December 19, 2010 the DGEN witnessed its biggest one day fall of 6.7 percent and since then the market has become bearish with almost no positive movement of stock prices. Against this backdrop, this study identified four moneymaking psychologies of domestic investors specifically greed, envy, speculation, and overconfidence that contributed to the formation of bubble, while four loss-minimizing and capital-protecting psychologies such as panic, frustration, lack of self-confidence, and distrust caused the bubble to burst. The bankers, brokers and manipulators were the biggest gainers, whereas the most unaware and greedy small investors encountered heavy loss. The market will be less volatile, more mature, and sustainable when most of the investors will be conscious about the potential risks and returns and the regulators will play their part sincerely and efficiently.},
 year = {2017}
}

Copy | Download

TY  - JOUR
T1  - Stock Market Crash in Bangladesh: The Moneymaking Psychology of Domestic Investors
AU  - Md. Tahidur Rahman
AU  - Syed Zabid Hossain
AU  - Md. Habibullah
Y1  - 2017/09/12
PY  - 2017
N1  - https://doi.org/10.11648/j.ajtab.20170303.12
DO  - 10.11648/j.ajtab.20170303.12
T2  - American Journal of Theoretical and Applied Business
JF  - American Journal of Theoretical and Applied Business
JO  - American Journal of Theoretical and Applied Business
SP  - 43
EP  - 53
PB  - Science Publishing Group
SN  - 2469-7842
UR  - https://doi.org/10.11648/j.ajtab.20170303.12
AB  - After the cruel crash in 1996 Bangladesh stock market had started growing from 2006 due to listing of a few profitable government entities and Multinational Companies (MNCs). Together with individual investors nearly all commercial banks involved themselves intensely in stock market. Step by step, the bullish market transformed into a bubble and on December 05, 2010, the Dhaka Stock Exchange General Index (DGEN) reached at the record high of 8918.5, almost 5.6 times higher than December 2006. Concurrently, market capitalization and turnover increased by 11.1 times and 61.7 times respectively. However, when the bubble burst on December 19, 2010 the DGEN witnessed its biggest one day fall of 6.7 percent and since then the market has become bearish with almost no positive movement of stock prices. Against this backdrop, this study identified four moneymaking psychologies of domestic investors specifically greed, envy, speculation, and overconfidence that contributed to the formation of bubble, while four loss-minimizing and capital-protecting psychologies such as panic, frustration, lack of self-confidence, and distrust caused the bubble to burst. The bankers, brokers and manipulators were the biggest gainers, whereas the most unaware and greedy small investors encountered heavy loss. The market will be less volatile, more mature, and sustainable when most of the investors will be conscious about the potential risks and returns and the regulators will play their part sincerely and efficiently.
VL  - 3
IS  - 3
ER  -

Copy | Download

Author Information

Md. Tahidur Rahman

Department of Business Administration, EXIM Bank Agricultural University Bangladesh, Chapainawabganj, Bangladesh
Syed Zabid Hossain

Departments of Accounting and Information Systems, University of Rajshahi, Rajshahi, Bangladesh
Md. Habibullah

Bangladesh Institute of Capital Market, Dhaka, Bangladesh

Download PDF

Sections

Plain Text BibTeX RIS

APA Style

Md. Tahidur Rahman, Syed Zabid Hossain, Md. Habibullah. (2017). Stock Market Crash in Bangladesh: The Moneymaking Psychology of Domestic Investors. American Journal of Theoretical and Applied Business, 3(3), 43-53. https://doi.org/10.11648/j.ajtab.20170303.12

Copy | Download

ACS Style

Md. Tahidur Rahman; Syed Zabid Hossain; Md. Habibullah. Stock Market Crash in Bangladesh: The Moneymaking Psychology of Domestic Investors. Am. J. Theor. Appl. Bus. 2017, 3(3), 43-53. doi: 10.11648/j.ajtab.20170303.12

Copy | Download

AMA Style

Md. Tahidur Rahman, Syed Zabid Hossain, Md. Habibullah. Stock Market Crash in Bangladesh: The Moneymaking Psychology of Domestic Investors. Am J Theor Appl Bus. 2017;3(3):43-53. doi: 10.11648/j.ajtab.20170303.12

Copy | Download

@article{10.11648/j.ajtab.20170303.12,
  author = {Md. Tahidur Rahman and Syed Zabid Hossain and Md. Habibullah},
  title = {Stock Market Crash in Bangladesh: The Moneymaking Psychology of Domestic Investors},
  journal = {American Journal of Theoretical and Applied Business},
  volume = {3},
  number = {3},
  pages = {43-53},
  doi = {10.11648/j.ajtab.20170303.12},
  url = {https://doi.org/10.11648/j.ajtab.20170303.12},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ajtab.20170303.12},
  abstract = {After the cruel crash in 1996 Bangladesh stock market had started growing from 2006 due to listing of a few profitable government entities and Multinational Companies (MNCs). Together with individual investors nearly all commercial banks involved themselves intensely in stock market. Step by step, the bullish market transformed into a bubble and on December 05, 2010, the Dhaka Stock Exchange General Index (DGEN) reached at the record high of 8918.5, almost 5.6 times higher than December 2006. Concurrently, market capitalization and turnover increased by 11.1 times and 61.7 times respectively. However, when the bubble burst on December 19, 2010 the DGEN witnessed its biggest one day fall of 6.7 percent and since then the market has become bearish with almost no positive movement of stock prices. Against this backdrop, this study identified four moneymaking psychologies of domestic investors specifically greed, envy, speculation, and overconfidence that contributed to the formation of bubble, while four loss-minimizing and capital-protecting psychologies such as panic, frustration, lack of self-confidence, and distrust caused the bubble to burst. The bankers, brokers and manipulators were the biggest gainers, whereas the most unaware and greedy small investors encountered heavy loss. The market will be less volatile, more mature, and sustainable when most of the investors will be conscious about the potential risks and returns and the regulators will play their part sincerely and efficiently.},
 year = {2017}
}

Copy | Download

TY  - JOUR
T1  - Stock Market Crash in Bangladesh: The Moneymaking Psychology of Domestic Investors
AU  - Md. Tahidur Rahman
AU  - Syed Zabid Hossain
AU  - Md. Habibullah
Y1  - 2017/09/12
PY  - 2017
N1  - https://doi.org/10.11648/j.ajtab.20170303.12
DO  - 10.11648/j.ajtab.20170303.12
T2  - American Journal of Theoretical and Applied Business
JF  - American Journal of Theoretical and Applied Business
JO  - American Journal of Theoretical and Applied Business
SP  - 43
EP  - 53
PB  - Science Publishing Group
SN  - 2469-7842
UR  - https://doi.org/10.11648/j.ajtab.20170303.12
AB  - After the cruel crash in 1996 Bangladesh stock market had started growing from 2006 due to listing of a few profitable government entities and Multinational Companies (MNCs). Together with individual investors nearly all commercial banks involved themselves intensely in stock market. Step by step, the bullish market transformed into a bubble and on December 05, 2010, the Dhaka Stock Exchange General Index (DGEN) reached at the record high of 8918.5, almost 5.6 times higher than December 2006. Concurrently, market capitalization and turnover increased by 11.1 times and 61.7 times respectively. However, when the bubble burst on December 19, 2010 the DGEN witnessed its biggest one day fall of 6.7 percent and since then the market has become bearish with almost no positive movement of stock prices. Against this backdrop, this study identified four moneymaking psychologies of domestic investors specifically greed, envy, speculation, and overconfidence that contributed to the formation of bubble, while four loss-minimizing and capital-protecting psychologies such as panic, frustration, lack of self-confidence, and distrust caused the bubble to burst. The bankers, brokers and manipulators were the biggest gainers, whereas the most unaware and greedy small investors encountered heavy loss. The market will be less volatile, more mature, and sustainable when most of the investors will be conscious about the potential risks and returns and the regulators will play their part sincerely and efficiently.
VL  - 3
IS  - 3
ER  -

Copy | Download