Fluctuation of Share Prices in Bangladesh Essays

Fluctuation of Share Prices in Bangladesh Essays Fluctuation of Share Prices in Bangladesh Essay Fluctuation of Share Prices in Bangladesh Essay CONTENTS ABSTRACT3 over view of dhaka stock exchange4 introduction6 problem statement7 Overview7 Research Question/Hypothesis7 OBJECTIVES AND AIMS8 Overall Objective8 Specific Aims8 BACKGROUND AND SIGNIFICANCE9 research design and methods11 Overview11 Sources of Data11 Collection of Data11 time fram e 12 key determinants of share price of dse13 conclusion and recommendation17 BIBILIOGRAPHY 18 APPENDIX 19 Background As, in Bangladesh many people are involved in share business and, significantly many newcomers are heading towards the markets for investing but most of them are investing whimsically or without proper justification on the share markets. As a result some are gaining markedly and some are returning back loosing a great amount. Some think that dividend policy is the key factor of the share price fluctuation. Actually it is not the only factors behind the movement of share prices. Financial scholars have been conducting studies of dividend policy for several decades; but different researchers have come to different conclusions. Financial economists have come to different conclusion about factors determining dividend policy and effect of dividend policies on common stock price. A general question may arise in the mind of the shareholders that the corporate dividend policy affects the value of their stocks. So, in addition to the theory of dividend policy, it is necessary to discuss the empirical evidence on the dividend payment practices of the corporations and their possible impacts on common stock prices. : Empirical testing of dividend policy may focus on determinants which directly and indirectly affects the stock prices in Bangladesh especially in the Dhaka Stock Exchange. Key words: Stock market, economic factors, political factors, stability. INTRODUCTION The stock exchange has been perceived by many as the backbone for most contemporary economies, serving a critical need of raising capital funds for companies at a reasonably low cost as compared to other sources of finance such as borrowing. The stock exchange serves two critical functions; it provides a critical link between companies that need funds to set up new businesses or to expand their current operations and investors that have excess funds to invest in such companies and it provides a regulated market place for buying and selling of shares at prices determined by supply and demand, not withstanding other macroeconomic fundamentals such as interest and inflation rates. To meet their short-term cash requirements corporations usually borrow from banks. However, when corporations need long term financing they may sell their ownership interests in the company to the public, or borrow from the public by selling bonds. Stocks exist to enable companies in need of long term financing to sell pieces of their business as stock (equity securities) in exchange for cash. This is the principal method for raising capital other than issuing bonds. These publicly held shares could be traded to other investors on the stock market. The Bangladesh Stock Exchange (DSE) has become very important as an investment vehicle for both local and international investors especially after the introduction Economic Structural Adjustment Program (ESAP) in 1991 when borrowing rates increased to levels above one hundred percent. This study will try to unravel the major qualitative arguments of stock prices on the DSE. Origins of the Dhaka Stock Exchange: Dhaka Stock Exchange  (Generally known as DSE) is the main  stock exchange  of  Bangladesh. It is located in  Motijheel  at the heart of the  Dhakacity. It was  incorporated  in 1954. Dhaka stock exchange is the first stock exchange of the country. As of 18 August 2010, the Dhaka Stock Exchange had over 750 listed companies with a combined  market capitalization  of $50. 28 billion. History It first incorporated as  East Pakistan  Stock Exchange Association Ltd in 28 April 1954 and started formal  trading  in 1956. It was renamed as East Pakistan Stock Exchange Ltd in 23 June 1962. Again renamed as  Dacca Stock Exchange Ltd in 13 May 1964. After the  liberation war  in 1971 the trading was discontinued for five years. In 1976 trading restarted in Bangladesh. In 16 September 1986 was started. The formula for calculating DSE all share price index was changed according to  IFC  in 1 November 1993. The  automated trading  was initiated in 10 August 1998. In 1 January 2001 was started. Central Depository System  was initiated in 24 January 2004. As of November 16, 2009, the benchmark index of the Dhaka Stock Exchange (DSE) crossed 4000 points for the first time, setting another new high at 4148 points. Formation Dhaka Stock Exchange (DSE) is a  public limited company. It is formed and managed under  Company Act 1994,  Security and Exchange Commission Act 1993,  Security and Exchange Commission Regulation 1994, and Security Exchange (Inside Trading) regulation 1994. The  issued capital  of this company is Tk. 500,000 which is divided up to 250  shares  each pricing Tk. 2000. No individual or firm can buy more than one share. According to stock market rule only members can participate in the floor and can buy shares for himself or his clients. At present it has 230 members. Market capitalization of the Dhaka Stock Exchange reached nearly $9 billion in September 2007 and $27. billion in Dec 9, 2009. Management The management and operation of Dhaka Stock Exchange is entrusted on a 25 members Board of Director. Among them 12 are elected from DSE members, another 12 are selected from different trade bodies and relevant organizations. The CEO is the 25th ex-officio member of the board. The following organizations are currently holding posit ions in DSE Board: ? Bangladesh Bank ? ICB ? President of  Institute of Chartered Accountants of Bangladesh ? President of  Federation of Bangladesh Chambers of Commerce and Industries ? President of  Metropolitan Chambers of Commerce and Industries ? Professor of Finance Department of  Dhaka University ? President of DCCI (Dhaka Chamber of Commerce and Industry) Mr. Md. Shakil Rizvi is the current president of DSE. Trading The Dhaka Stock Exchange is open for trading Sunday through thursday between 11:00am – 3:00pm  BST, with the exception of holidays declared by the Exchange in advance. Recent Developments in DSE Total market capitalization of all listed securities in DSE increased substantially (by around 133 percent) in end of December, 2007 to Tk. 753. billion which, as a share of GDP, reached a new height in 2007 of nearly 16. 0 percent as against 2. 3 percent in 2003. In December 2007, a total of 350 securities were listed at DSE comprising 266 companies, 14 mutual funds, 8 debentures, 61 treasury bonds, and 1 corporate bond as opposed to a total of 267 securities comprising of 248 companies, 11 mutual funds, and 8 debentures in December 2003. Thu s during the last four years only 43 new companies got listed in the DSE of which only three were listed by direct listing route, and the rest were listed through public offering. Market indicators started to show new dynamism from November 2003 and reached new heights at the end of December 2003 as the daily average turnover jumped to Tk. 136. 9 million from the recorded low of Tk 30. 3 million in September 2003 (Chart 1). The DSE general index also started to rise from November 2003 which continued till the end of December 2004, as the DSE-Gen index reached its peak at 1971. 3. These developments owed significantly to the banking sector performance, as indicated by market capitalization and total turnover. Declaration of lucrative incentives in the FY04 national budget, floatation of shares of some profitable companies through Initial Public Offer (IPO) along with several important reform measures initiated by the Securities and Exchange Commission (SEC) helped to regain investor’s confidence back to the capital market. The FY04 national budget exempted the purchasers of listed equities of any queries as to the source of fund so long as purchased shares were not sold or transferred within two years of purchase. This was made effective for a limited period (FY04 to FY05). In addition, dividend-income tax was exempted and a new dividend distribution tax was imposed on the companies paying dividend. 1 One important development in the capital market in 2004 was the initiation of electronic settlement through the Central Depository System (CDS) in January 2004. In order to prevent market manipulation by in-house officials of listed companies, SEC banned the purchasing or selling of shares of a company by its owners during an interim period (from the date of the financial year closure and the day of approval of accounts by the company’s board). De-listing of 13 companies in August 2004 by DSE due to their repeated failure in complying with the listing rules was also an important step toward bringing discipline in the stock exchange. The trading of Bangladesh Government Treasury Bonds (BGTBs) started in DSE from January 2005. However, in order to temper the rising trend of stock index and control excess liquidity in the capital market, SEC temporarily suspended the credit facility extended by brokers to their clients. 2 At the same time, SEC also increased the members’ trade margin requirements by reducing the free trading limit from Tk. 10 million to Tk. million. As a result, secondary market activities became quiet during January-Februaryn 2005 and the daily average turnover declined to Tk. 245 million from Tk. 402 million in November-December 2004. However, the daily average turnover of DSE increased to Tk. 447 million in March 2005, which significantly surpassed the level of daily average transactions during the F Y03-FY05 period. 3 Considering the interest of the investors, SEC amended the margin rule in February 2004 by increasing the free limit to Tk. 10 million; and withdrew the order relating to the suspension of margin rule in April 2005. At the end December 2005, the stock index stood at 1,677. 3. The market observed a downward trend during January-June 2006 and then turned positive from July 2006. In August 2006, the daily average turnover at DSE reached Tk. 561 million, where Dhaka Electric Supply Company (DESCO) and Rupali Bank Limited accounted for around 13 1 In order to attract companies into the capital market, several other steps were also taken. The corporate tax rate for non-listed companies was fixed at 37. 5 percent and for listed companies it remained unchanged at 30 percent (and 45 percent on banks, insurance, and financial institutions). However, 10 percent tax rebate was allowed for companies declaring 20 percent or more in dividend. 2 The DSE-general index increased by 52 percent during July to December 2004 and the daily average turnover increased from Tk. 140 million in March-July 2004 to Tk. 316 million in August-December 2004. 3 Around 59 percent of the turnover was attributed to the banking sector. and 4 percent of the total turnover respectively. 4 In the wake of political instability, the market witnessed fluctuations during the last two quarters of 2006; the index however rose to 1,609. at the end of 2006. Sign of vibrancy in DSE started from the beginning of 2007 and continued till the last trading day of the year. All the market barometers significantly rose during 2007 reflecting regained investors’ confidence after 1996 stock market bubble. The increasing trend of DSE-Gen index started in January 2007 and continued over the year except for a short period covering February-April 2007. The DSE-Gen index crossed the 3,000 mark for the first time and closed at 3,017. 2 on the last trading day in 2007. In October 2007, the daily average turnover at DSE reached Tk. ,297 million, but declined to Tk. 1,244 million in December 2007 mainly due to SEC intervention. 5 OBJECTIVES AND AIMS Overall Objective It is important to have a sound knowledge over the field where someone wants to have an access in business or any career related job. Since, share market is popularly recognized as a good field for investment many people intends to invest here for safety and good return than Bank or any other Financing company. But some people found it more volatile than other and considered as insecure investment. My study would like to meet up the following pursued objectives To map out the limitations of the bank-based financing system of Bangladesh. To examine the structure of the existing financial sector of Bangladesh emphasizing on an organized capital market. To analyze limitations and examine opportunities of the capital market of Bangladesh covering both equity and debt markets in creating a congenial investment climate. To provide a useful basis for building a sustainable capital market with a view to creating a healthy investment climate in Bangladesh. To find out the reason of market fluctuation and make a steady market . Specific Aims The main objectives of the study is to make a sustainable environment in the share market as the investors find it a safe and secure place for their investing . Attract investors to invest more in the market showing that the reasons of the market fluctuation and its inside conspiracy . MATERIALS AND METHODS The focus of this review is the determination of stock prices in Bangladesh. To gather the information that we wanted we used interviews and the archival method. We targeted the people in the various organizations/companies that are registered on the Dhaka Stock Exchange, stock exchange staff, stock broking firms, investment analysts. In some instances we engaged people in some informal discussions because if people know that they are being interviewed they tend to withhold some information which they think is sensitive. We also gathered published information [3] from various libraries and the Bangladesh Stock Exchange publications. Importance of stock markets The importance of the stock market as an investment vehicle for the investors is explained here. Very few people in Bangladesh are aware that they can invest money on the stock market and reap some very lucrative returns through dividends and capital gains. For investors who invest on the market there are of course some risks that they have to live with, for example, the unexpected crashing of the stock market. According to McGregor[6] companies usually borrow money from banks in order to meet their short-term cash requirements. However, when they need long-term finance, they may sell their ownership interests in the company by using common and preferred stocks. Moreover, they can also borrow from the public by selling bonds to meet their long-term capital requirements. Stocks exist to enable companies in need of long-term finance to sell pieces of their business as stocks (equity securities) in exchange for cash. The selling of equity securities is the principal method of raising long-term capital other than the issuing bonds. The publicly held shares can be traded to other investors on the stock market and are in this case, known to be liquid[5]. According to Stanlake[7] company shares represent permanent loans and there are no rights to repayment of such loans. He also noted that in the absence of some kind of stock exchange, securities such as these will be very illiquid and it would be very difficult to find buyers for them. Hence, the existence of the stock exchange solves this problem because it provides a market where holders of shares and long term securities can always buy and sell them. A company that has obtained permission to have its shares traded on the stock exchange will find it much easier to raise new capital by making an issue of shares. The stock exchange, therefore, is an essential part of the capital market, i. . , market for long-term loans[2]. Shauna Croome[1] states that companies receive money from the securities market only when they first sell a security to the public in the primary market, which is commonly referred to as an Initial Public Offer (IPO). It is in the subsequent trading of these shares on the stock market that investors buying and selling the stock would benefit from the movements in the stock price. The benefits accrue through either the appreciation of the stock price or the dividends that are paid out. Croome[1] further went on to explain why management and founder members of a given company care about their stock’s performance in the secondary market when the company has already received its money in the IPO. He argued that the explanation lies in the fact that management or founder members of a public company tend to own a significant number of shares and also that salary incentives or stock options for management could be tied to the performance of the company’s stock. For these two reasons, management acts as shareholders and thus pay attention to their stock price. According to McGregor[6] another main role of the stock market is to act as a barometer of the financial health for the companies that are listed. Thus creditors tend to favorably consider companies whose shares are performing very well for financing purposes. This preferential treatment is due to the relationship, which exists between a company’s earnings and its share price. Over the long term, strong earnings are a good indication that the company will be able to meet its debt requirements. As a result, the company will receive cheap finance because of the lower risk associated with it. The Dhaka Stock Exchange provides the platform and the means for raising capital for both Bangladesh and international companies through the issuance of equity, debentures and depository receipts. It also provides investors with the opportunity to buy and sell shares in any company listed on the stock exchange. The other fact that has to be considered is that a stock exchange has been perceived as the backbone for most contemporary economies, serving a critical need of raising capital funds for companies at a reasonably low cost as compared to other sources of finance such as borrowing[2]. RESULTS AND DISCUSSION OF DETERMINANTS OF STOCK PRICE OF DSE The determinants of stock prices that we established after analyzing the data that we collected through archival techniques and interviews are summarized below: Corporate earnings: Information on a company’s performance and growth prospects is very important in determining a company’s share price. Demand increases for the shares that have a high prospect for growth (blue chip shares). The prices of such shares rise much faster than those of companies whose growth prospects are bleak. The expected receipt of dividend income is sometimes an incentive for investing in a given stock, particularly if the yield on the investment exceeds the return offered on other alternative investments like savings accounts. Investors may pay a premium for shares in issue. The less liquid the shares are, the more difficult they are to come across and one may have to pay a premium in order to get them. Management: The strength of the management team plays a very crucial role in determining the price of a share. Changes in the management team affect both the risk and returns associated with the counter. If the Nincumbent management team is perceived to be strong due to its past performance, changes in such a team can result in the dropping of share price and vice versa. Lawsuits: News of lawsuits against a company can severely affect its share price. Besides the issue of unwanted bad publicity, lawsuits can result in fines, damages and/or withdrawal of trading licenses. This is risky for an investor and therefore causes a plunge in the share price. Market liquidity and stability: When the market is less liquid, there are no funds to buy shares and hence share prices go down especially when supply is high. During financial crises, stock market information is very sensitive and hence share prices are volatile. Stock prices normally decline during the subscription period and when companies announce rights issues. Stock markets include laws that govern insider trading because this can also lead to share price volatility. Insider dealing is trading of stocks by people within the company who have important information about the direction the company is taking. The public may deduce that when the insiders are buying or selling shares of their own companies, they have some important information about the companies that drive them to do so. Availability of substitutes: When the market has substitute securities such as loan stocks, unit trusts and treasury bills, the share prices often go down or remain constant. For eight days from the 7th to the 14th of October 2004, most share prices for companies on the DSE traded at constant prices due to the short term treasury bills that were issued by the central bank during the same period to reduce market liquidity. For example, Old Mutual shares traded at a constant price of $11800 during that period even after the publication of some impressive results. Government policy: Changes or proposed changes in the system of taxation, government spending, monetary policy and in industrial policy (e. g. , privatization) can have an important effect on people’s willingness to buy or sell shares. In Bangladesh the recent problems that were experienced in the financial services sector have had profound effect on the financial counters. According to the Business Herald (5th of October 2004) financial counters are no longer as attractive to the prospective investors as they were in the previous years. Sentiments on the financial counters, with the exception of those that are financially stable reached their lowest ebb in 2004. During the first half of the year financial counters either remained static or plummeted, with at least three firms being suspended from trading on the Dhaka Stock Exchange. It can also be noted that each time a monetary policy or a government budget statement is presented the share prices are affected in some way. This clearly demonstrates the fact that government policy and actions impact on the share prices of listed companies. Macroeconomic fundamentals: Interest rates and inflation also have an effect on share prices. Where real interest rates are negative, investors tend to seek alternatives that yield positive returns and shares are one such alternative. As investors move from the money market to the DSE, share prices are likely to increase due to increased demand. When investors are assured of positive real interest rates on the money market they are more likely to invest on the money market where returns are guaranteed instead of the stock market where returns are uncertain. The exchange rate also has an effect on share prices as it affects the companies that either export or import. Devaluation of a currency might have a positive effect on the share price of an exporting company as it improves its competitiveness on international market. However, the companies that import raw materials are negatively affected by devaluation as their production costs automatically go up. On the other hand, companies that produce import substitutes are likely to benefit from devaluation as the imported products become less competitive as compared locally produced goods. Investor sentiments: Share price movements are also explained by the perceptions of the investors. For example in a bull market share prices are expected to rise and in a bear market they are expected to fall. Investor sentiments may be demonstrated through the seasonality of stock markets. For instance, share prices are usually anticipated to fall during the festive season. This compels some investors to redeem their shares just before the beginning of the festive season so as not to experience capital losses. The level of confidence of the investors in the general economy and economic policies of the country also impact on the share prices. For example, the land reform program, social unrest and policy reversals that were experienced between 1997 and 2001 negatively affected the stock market, as investors were uncertain about the direction the economy was taking. Uncertainties of this nature may also affect the global markets, for example, just after the 11th of September 2001 attack on the USA major world stock markets recorded their lowest volumes of trade. Technical influences: Technical influences are another factor that impact on share prices. A good example is the ranking of counters according to the performance and the profitability of the companies. Investors tend to regard highly counters in the ‘top ten’ and these are the companies they would be inclined to invest in. This is a self-fulfilling prophecy because as investors demand such shares their prices continue to go up. For example, in Bangladesh counters such as Old Mutual, Portland Cement, British American Tobacco, Delta Life Insurance are some of the counters in the top ten and they are the ones that are popular with investors. Another technical influence is the use of past share prices to forecast how share prices and stock markets will perform in the future. A company’s previous performance may always act as a pointer to its future performance and this guides investors as far as their investment decisions are concerned. Analyst reports: Analysts’ recommendations on â€Å"buy† or â€Å"sell† decisions affect prices of stocks in question as investors normally take heed of such recommendations. The public normally accepts the advice given by the analysts since the analysts are specialists in their respective fields. The determinants of share price on the basis of face value: Every company has a face value Company announce the dividend on the basis of face value On the basis of premium on share On the basis on right share On the basis of bonus share Earning revenue of company determined the share price Reputation of company often determined the share price Consistency of company often determined the share price Offerings of company determined the share price Determinants of share prices on the basis of Market Mechanism Ignorance about share market Syndicates affect on share market False information is a determinant of share market Unconsciousness of money market is one of the main reason of the fluctuation of the share market, Determinants of share prices on the basis of liquidity and governmental steps Interest rate of Bangladesh Bank and commercial Bank Inflation rate Total GDP Determinants of Market Price of Common Stock Present, past and future earnings of the company generally guide the shareholders? expectations of dividends and capital gains. The portion of earnings into dividends, and retained earnings is taken into account by the investors. Two major hypotheses are basically developed to explain the determinants of share price viz. , i) dividend hypothesis and ii) retained earnings hypothesis. The former attributes the explanation of share prices to the proportion of earnings that are distributed as dividends. Share price of a company with higher dividend payout would be higher. Even, if earnings remain the same, share price will increase as dividend payout increases. Several arguments, however, are developed in favor of dividend hypothesis as: a) dividends tend to reduce the risk and uncertainty attached to a share, b) it refers to the psychological preference of investors for current rather than future earnings, and c) it relates to the information content of dividend payout as dividends are taken by investors as a tangible evidence of earnings capacity of a firm. Retained earnings hypothesis, on the other hand, contends that higher share prices are consequences of higher retained earnings. Retained earnings being an important source of internal financing for business expansion effect share prices by their influence on future earnings. Kumar and Mohan (Kumar and Mohan, 1975) hypothesized that the market price of share is a function dividends and retained earnings and used the following regression Equation: Pit = a + bDit + cRit 29 where, Pit = price of stock i at time t, Dit = dividend per share of stock i at time t and Rit = retained earnings of stock i at time t. The coefficients they estimated for the two explanatory variables, dividends and retained earnings, are more or less equally significant. They argued that the dividend hypothesis has a little superiority over the retained earnings in determining the share prices, as T value is found slightly higher in case of dividends. Consistently, Nishat (Nishat, 1995) attempted to judge the relative importance of the dividend vis-a-vis retained earnings hypothesis in determining the share prices. He developed the following model to compare the dividend and retained earnings influence on the share prices in highly profitable growth industries of Pakistan: Pit = ? 0 + ? 1Dit + ? 2Rit Where, Pit = price of stock i at time t, Dit = dividend per share of stock i at time t and Rit = retained earnings. The above model might cause an upward bias in the dividend coefficient due to two major reasons. Firstly, the relationship is misspecified as it assumed that the riskiness of the firm was uncorrelated with dividend payout and share prices. This problem should be eliminated by introducing a variable namely lag of earning price ratio, to measure individual deviation from the sample average earning price ratio in the previous year periods as follows: Pit = ? 0 + ? 1Dit + ? 2Rit + ? 3[P/E] i(t? ) Where, [P/E]i(t? 1) = price earnings ratio of the previous Secondly, the income reported by a corporation in any particular period is subject to a host of short-run economic and accounting factors. If prices were related to normal than reported income, in regression equation, it would produce biased results in favor of dividend payout. However, the difference between the dividend and retained earnings coefficient might be reduced by use the following model: Pit = ? 0 + ? 1Dit + ? 2Rit + ? 3Pi(t? 1) Where, Pi(t? 1) = share price of the previous year. Some Policy Implications Volatility in stock prices is a common phenomenon in the equity market. Individual stock price undergoes ups and downs which is a regular feature of an efficient stock market. In the absence of price volatility, potential investors lose interest to participate in the stock market. However, careful monitoring of volatility by the concerned authority is needed in DSE which is yet to achieve maturity especially when high volatility exists in the market. If necessary, there should be effective intervention when the market experiences excess volatility. During unpredictable movements of individual stock prices, it would be useful for the authority to identify the factors behind such price movements and quickly disseminate the information to interested stakeholders. In addition, the authority may take measures to make available all relevant information relating to real worth of the companies experiencing excess volatility in stock prices, especially to the investors. It isn also important to ensure adequate supply of stocks through active participation of the government in the capital market particularly to dampen the excess demand. The endeavor should be to make the market more liquid, and the government can directly contribute to this by floating more treasury bonds. The availability of risk-free instruments would allow the investors to diversify their portfolios that carry lower risks. Of course, greater awareness and the development of stock market infrastructure are essential to stock market development. In addition, it is necessary to ascertain enforceable regulations that would ensure financial transparency, stop financial malpractice, and prevent any form of market manipulation. Capital market participation, in the form of floating debt and equity or asset securitization, remains the acceptable options of financing and materializing these options. As a financial product, securitization has gained popularity in Bangladesh for providing a method of issuing bonds that ensure maximum safety for investors. Most importantly, securitization addresses the fundamental asset liability maturity mismatch problem by providing true long-term funds. Upswings and downswings in the share market occur daily and no one can fathom the precise reasons. Why do the share prices fluctuate, beating the estimates of the brokers or investors? The price level is affected by the complex environment of the total economic system and all the economic activities are interlinked. Some of the important reasons that adversely affect the market are, extreme climatic conditions like heavy rain and floods or the total absence of it leading to crop failure, the varying interest rates, the political developments, war-like conditions or actual war, policy changes made by the government in the regulatory mechanism, and conditions that disrupt the confidence of the investing community. Even when the economic conditions are favorable, the share prices may crumble due to many extraneous factors. The internet and industrial revolution have deeply impacted the market and the technological advancement will continue to affect the small and big companies. The concept that world is one family has become the reality in the commercial world. So, global and domestic factors will have to be taken into account while  trading  in shares. Not long ago, if an entrepreneur thought of establishing an industrial unit, his survey would mostly confine to similar units within the country and their competing capacities. The situation is no more the same. For example, the giftware industry in India is facing stiff competition from China, and several units have pulled the shutters down or are on the verge of closure. The shareholders who invested in reputed gift items manufacturing companies have suffered losses. The most unexpected things happen in the share market and the random, unforeseen forces do their job pretty well to demolish the conclusions of the analysts and researchers. The market shifts dynamically with the impact of the laws of supply and demand, and the cyclical nature of the share market. Even a shrewd investor can only make a general guess about the adverse market factors affecting shares, but the precise predictions are impossibility. Finally, there are  stock  specific factors and general market conditions that will impact the price of a share. Professional stock trading companies offer consultancy that will help an investor to take profitable decisions. Do not go by cheap advertisements that promise you the moon. Such agencies get payment of their fees/brokerage and later land you in trouble. Conclusion and Policy Implications This study attempts to analyze different theoretical models in explaining the impact of dividend vis-a-vis retained earnings along with other independent variables like price earnings ratio of the previous year, lagged price on the prices of the stocks associated with DSE. To this end, some empirical studies relating stock prices to dividends and retained earnings conducted elsewhere have been analyzed. These studies produced considerable controversy and confusion regarding relative importance of dividend and retained earnings in the explanation of stock prices. In my study, the relative importance of dividend, retained earnings, price earnings ratio of the previous year and lagged price in explaining stock prices of the companies listed with DSE are explained. The findings suggest that in the market of DSE the overall impact of dividend on stock prices is comparatively better than that of retained earnings when dividend and retained earnings are taken as explanatory variables. It is also found that the impact of dividend and retained earnings is above the impact of additional explanatory variables like price earning ratio for the previous year and lagged prices. It means that whatever explanatory variable is taken announcements of expected dividends of the firms listed with DSE play an important role in the determination of stock prices. On the other hand, the study evidenced little bit different view when industry-wise dynamic relations are revealed. In some industries the impact of dividend on stock prices is stronger than that of retained earnings when dividend and retained earnings are taken as explanatory variables. In some cases the dividend impact remains very close to the retained earnings impact and in some cases impact of retained earnings on stock prices is comparatively better than that of dividend. It is also found that the impact of dividend and retained earnings is above the impact of additional explanatory variables like price earnings ratio for the previous year. But the impact of dividend and retained earnings is not above the impact of additional explanatory variables like lagged prices. Finally, it may, however, be concluded that whatever explanatory variable is taken announcements of expected dividends of the firms listed with DSE does not play an important role in the determination of stock prices in all industries. 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