IMPACT OF THE EVENT ON THE BANKING INDUSTRY

The most recent monetary policy statement has an objective of reducing the high inflation rate in the country through increasing the overall interest rate and thus, curbing the domestic credit growth. Therefore, the growth rate of money supply is supposed to be slower after the event and both directly and indirectly the impact should fall on the entire banking industry. Because reduced money supply means reduced funds to be loaned out to creditors, banks revenue base, in general, should contract, resulting in lower projected earnings. In a semi-strong form efficient market, investors will be aware of this impact and thus, prices of the banking industry, in general, should go down. Whether this form of efficiency holds in case of Bangladesh is explained below. Number of companies chosen: 8 Basis of selection: Stratified random sampling; 11% of the sample size should be chosen from the banking industry. Findings about Price Trend: Company Names Trend of Price (Period 21) Upward Downward Downward Downward Downward Downward Upward Upward Trend of price (Period 32) Downward Downward Downward Downward Downward Downward Downward Downward Significance of Price Trend

ICB Islamic Bank Islami Bank Bangladesh Limited Jamuna Bank Limited One Bank Limited Rupali Bank Limited Standard Bank Limited Pubali Bank Limited Social Islami Bank Limited

Both movements are statistically significant.

Movement in period 2 was not statistically significant. However, movement in period 3 was statistically significant.

Analysis of Price Trend: 1. Three banks (i.e., ICB Islamic Bank, Pubali Bank and Social Islami Bank) experienced an upward price movement in period 2. However, in cases of Pubali Bank and Social Islami Bank, the upward movement was not statistically significant, meaning that the event did not have any immediate impact on their prices. This is inconsistent with the semi-strong form efficient market hypothesis because according to the hypothesis, prices must adjust quickly after a large economic event in the country.

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Period 2: Immediately 10 days after the event. Period 3: 20 days further away from period 2.

2. ICB Islamic Bank experienced a statistically significant upward movement in its price. This is inconsistent with the supposed impact of a tight monetary policy statement, 2012-13. Therefore, the price movement is not justified by semi-strong efficient market hypothesis at all. 3. Rest of the banks experienced a statistically significant downward trend in their prices after the event. This is consistent with the event. However, the price adjustment was not immediate as illustrated by the statistically significant price adjustment even in period 3. This clearly shows that, prices were adjusted gradually, rather than immediately. This made the movement inconsistent with the semi-strong efficient market hypothesis. Findings about Volatility Trend: Company Names Trend of Volatility (Period 23) Downward Downward Downward Upward Downward Downward Downward Downward Trend of Volatility (Period 34) Upward Upward Upward Downward Upward Upward Upward Upward Significance of Price Trend

ICB Islamic Bank Jamuna Bank Limited One Bank Limited Social Islami Bank Limited Islami Bank Bangladesh Limited Rupali Bank Limited Standard Bank Limited Pubali Bank Limited Analysis of Volatility Trend:

Neither movement is statistically significant.

Movement in period 2 was not statistically significant; movement in period 3 was statistically significant.

1. In the first four cases, the movement in price volatility was not statistically significant. It reflects the fact that the overall volatility movement was, on an average, not high after the event. This means that the event had a minor effect on these four stocks in terms of volatility. 2. In case of the last four banks, the volatility increased at a much later period in a statistically significant way possibly because of mixed signals from the overall market and investors at that time. However, again the event did not have an immediate impact on the stocks average volatility.

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Period 2: Immediately 10 days after the event. Period 3: 20 days further away from period 2.