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Boosting of nation's economic growth and solving the problem of underdeveloped economy is widely depends upon the nature of its economic infrastructure. One of the basic elements in achieving a selfreliant growth of the economy and for sustaining the desired level of economic development is an accelerated rate of investment or capital formation in the economy and the rate of investment or capital formation depends upon the efficiency of financial markets and institutions. The financial systems or markets perform this function by channeling the nation's saving into best uses. It does this by bringing together those who have surplus funds to lend and those who wish to borrow to finance their expenditures. This financial market is broadly classified as Money Market and Capital Market. Money market refers to a market where debt securities or less than one-year maturity are traded whereas capital market is the market for long-term debt and corporate stocks. The existence of an organized securities market is considered to be a pre-requisite for a modern free enterprise as well as for a mixed economy.

CHAPTER – 1

1.1 Capital Market:

Investment decisions are taken within the framework provided by a complex of financial institutions and intermediaries, which together comprise the capital market. “Capital market means any body or individuals, whether incorporated or not, constituted for the purpose of regulating or controlling the business of buying selling or dealing in securities.” (Bhalla, 1995: 21) It is just the market for capital funds. The word capital used in this context implies a long-term commitment on the part of the lender and long-term need for the funds on the part of the borrower. Both lenders and borrowers coming together in capital market to play effective financial intermediary role in primary and secondary market through the use of various long-term capital market instruments. It has a vital role in promoting efficiency and growth. It intermediates the

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flow of funds from those who want to save a part of their income from those who want to invest in productive assets. It is the market, which provides the mechanism for channeling current savings into investment in productive facilities, that is, for allocating the county’s capital resources among alternative uses. In effect, the capital market provides an economy’s link with the future, since current decisions regarding the allocation of capital resources are a major determining factor of tomorrow’s output. The capital market plays a crucial role in shaping the individual investment and portfolio decisions. Capital market consists of securities market and non-securities market. Securities markets implies mobilization of the funds through issuance of the securities like shares, bonds and debentures by corporate sector and bond, bills and debentures by government. These securities traded in the secondary market are generally negotiable and hence can be traded in the secondary markets. Non-securities market refers to the mobilization of the financial resources by the financial institutions in the form of deposits and loans. Primary and secondary markets are the two wings of the capital market. Primary market concerns with the issue of new companies stock whereas the secondary market deals with the previously issued shares. The majority of all capital market transactions occur in the secondary market. The proceeds from the sale of securities in this market do not go to the original issuer which means that it does not create new additional capital. In other words, securities are traded among the individual as well as institutional investors. The structure of capital market can be shown as follows: Chart:1.1: Structure of Capital Market

Capital Market

**Non-Security Market
**

Bank Deposit Business Venture Fixed Assets Other Sectors

Security Market

**Equity Market Primary Market
**

Secondary Market

Debt Market

Corporate Debt Market 2 Government Debt

1.2 Prices of Securities

The force of supply and demand interacts to determine a stock market price. Prices move in trends because of an imbalance between supply and demand. When the supply of a stock is greater than the demand, the trend will be down as there are more sellers than buyers. When demand exceeds supply, prices tend to rise. There are essentially two concepts to explain the movement of stock price. They are i) ii) Technical Analysis Fundamental Analysis

In technical analysis, the analysis record historical financial data in charts, study these charts in an effort to find meaningful patterns, and use these patterns to predict future prices. Some charting techniques are used to predict the movements of a single security; some are used to predict the movements of a market index; and some are used to predict both the action of individual securities and the market action. Fundamentalists forecast stock prices on the basis of economic, industry, and company statistics. The principal decision variables ultimately take the form of earnings and dividends. The fundamentalist makes a judgment of the stock's value with risk return framework based upon earnings power and the economic environment. Fundamental analysis is an essential, core skill for any investor as well as it helps to evaluate a company on the basis of its sales, earnings, dividends, products, management and other economical and industrial outlook.

**1.3 Variables Affecting the Prices of Securities
**

Basically, price of securities is determined by the interaction of demand and supply of corresponding securities. There are many other reasons that cause the stock price fluctuation. Major of them can be classified as

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These variables may be closely related to the internal factors of the corresponding companies like the dividend policy of the company.Maoist Insurgency .Ashoj-18. 2001 event of New York . As a whole.Sep-11.Maoist Insurgency (Cease fire.Dividend Policy and profitability of the Company . Peace talk and rupture of peace talk and re-starting of war) .Fiscal and Monetary Policy Stock Market Price Socio-Cultural Factors -Traditional Investment Procedure of Nepalese . political environment of the country etc. business volume and profitability position of the company or to the external factors like the economic condition of the nation.2 : Factors Affecting Price of Securities -Dissolve of Parliament Political Factors . For this research purpose some important variables of these classified factors are taken and analyzed on the basis of primary as well as secondary data. 2059 Event -5 Parties Movement . government’s monetary policy.Interest Rate and Inflation . these major factors (internal and external) that affect the price of the security can be presented on the following chart: Chart 1.Social Attitude and Beliefs toward Investment .Government Monetary Policy . 2002)” 4 . 2059 (4-Oct.Present Economic Condition .Nepal’s Entry in WTO .OTC market . socio-cultural factors and technological factors.Investors’ Knowledge on Stock Exchange Technological Factors .Information on Web .Evolving of E-transaction .World-Wide Terrorism .Tax System .political factors. economic factors.Traditional Way of Transaction in NSE Out of these factors or variables the following major events or variables have been taken for analyzing as research variables: Event of “Ashwin-18.Sep-11 event Economic Factors .

The Market Price per Share (MPS) of commercial banks. in determination of the market price of share. insurance services and participating in developmental works. 2060 (August-27. there has been major influence of rumors rather than strength of the companies. 1. Although Nepal’s capital market’s history is short. Earning per Share (EPS). Most of these investors are not aware of the financial strength of the companies and they do not analyze company’s financial indicators before they invest their funds through secondary market – NEPSE. Up to now. 2059 (29-Jan. 2003). Dividend per Share (DPS) and last year's dividend. Instead. there are altogether 108 such companies. which are listed in NEPSE. 2003) Nepal's entry in World Trade Organization (WTO) at Bhadra-25. especially foreign joint 5 . Such institutions are provide banking services. 2060 (Sep-11. The market price of common stock (share) does not seem to be in accordance with the financial indicators – Net Worth per Share (NWPS). manufacturing and processing and other various service sectors. the concept of capital market is growing rapidly within a short span of time. It is mandatory to enlist the public limited companies in Nepal Stock Exchange (NEPSE) which creates liquidity on shares of such companies issued in the primary market and provides floor for trading of shares. Ceasefire on Magh 15. 2002/03: 8) Investors purchase the stocks of the companies through the primary market (initial offering) or through the secondary market. 2003) and starting of peacetalk 5 major political parties' movement during last seven months Rupture of peace-talk and re-starting war at Bhadra-10.4 Statement of the Problem The number of public limited companies is increasing tremendously in response to the economic liberalization and globalization policies adopted by the Nepalese government. (SEOBNAnnual Report.

2002: 5). the research questions are: 1. There are very few practices of analyzing this aspect in the Nepalese context. What are the major financial indicators which have major influence on determining the MPS? 6 . Here arises the question of efficiency of the Nepalese share market. The reaction is based on the assumption of strong form of the market efficiency. EPS. The dubious and hazardous movement of share prices has no sound fundamental backing of analysis and relationship to past results revealed in limited calculated dividend yield. are really representing the financial indicators. the trend is that the MPS of public quoted companies is above their book value. Generally. The Security Exchange Act strictly prohibits the misuse of inside information but the regulating authorities can make no advance notice of how there is the use of inside information" (Subedi. Many listed companies do not produce timely financial statement or annual reports to the investors. NWPS. An article in Spot Light states that "our stock market is not efficient enough since all the listed companies do not make past information available to shareholders. Moreover. That’s why the major issues might be whether the MPS of listed companies. However. More specifically.e. Most of the investors are investing their funds haphazardly without considering risk involved in their investments. The high movement of share prices may be the outcome of the efficient market behavior. especially for selected companies. i.venture Banks' has been much higher than MPS of other sectors. the overall NEPSE is depended upon MPS of such companies. and DPS etc. in an efficient market MPS fully reflects all the historical information publicly available. The investors conclude that there has been a foul play using inside information. The market value is determined by the supply and demand functions. net worth and price multiples. It denotes that every investor should be well aware of the degree of risks in which they are investing or going to invest their saving funds.

To study the signaling and informational effect on share price. The study will confine only to Nepal Stock Exchange and its members. Is there any specific relationship of MPS with fundamental financial indicators (EPS. 2. NWPS. financial problem and lack of research experience will be the primary limitation and other limitations are as follows: 1. Time constraints. 1. 4. 3. 1. 6. 4.2. DPS. DPS and current year’s dividend. To examine and evaluate the relationship of MPS with various financial indicators like. 5. To examine Nepalese investors’ response on the change of price of stock. To provide suggestions on the basis of findings. 7 . Basically the study is done for the partial fulfillment of masters of business studies.5 Objective of the Study 1. EPS. To identify of major financial indicators which affects on determining the MPS. under-priced or equilibrium priced. NWPS. To identify whether stocks of the sampled companies are overpriced. and current year’s dividend) or is the trend of MPS running in accordance with these financial indicators? Are the common stocks of the sampled companies are equilibriumpriced? How much the signaling and informational factors affect the share price? Whether the investors are aware of the trend of financial indicators which have major influence on determining MPS and how much the investor rational in terms of investment return of the common stocks investment? 3. 5.6 Limitation of the Study The study will have some limitations.

2059 (4-Oct. 3. The study has to be done on the secondary data of selected ten companies of financial indicators. Null Hypothesis: There is no significant change in share price before and after the Ashwin-18. which have been collected from books. This research study is mainly based on secondary data. 1. 2003) and starting of peace-talk. 4. 2059 (29-Jan. 2002) event. 3.2. 8 . five from private joint venture banks and three from selected finance companies and rest two from insurance companies among the companies in the NEPSE. 2003) and starting of peace-talk. 2059 (4-Oct.7 Test of Hypothesis On the basis of the earlier stated variables and events which affect the price of securities. company's web site and other publications. Foreign information and rules affecting the share market is Studies and reference were also extremely limited in the ignored. Alternative Hypothesis: There is significant change in share price before and after the Ceasefire on Magh 15. Null Hypothesis: There is no significant change in share price before and after the five major political parties' movement. Alternative Hypothesis: There is significant change in share price before and after the Ashwin-18. 2059 (29-Jan. financial statement and report of the Security Board of Nepal (SEBON) and Nepal Stock Exchange and selected company's' annual report. the following hypotheses have been set: 1. Due to the lack of data other sectors can not be used. 2. Null Hypothesis: There is no significant change in share price before and after the Ceasefire on Magh 15. The study covers the information of only few fiscal years' data. 2002) event. prospective of Nepalese stock market. 5.

2003). objectives of the study. Null Hypothesis: There is no significant change in share price before and after the rupture of peace-talk and re-starting war at Bhadra-10. sources of data. the important chapter of the study will be the presentation & analysis of data. 2060 (Sep11. population and sampling. 2060 (August-27. Chapter II: Second chapter deals with the review of available literature.Alternative Hypothesis: There is significant change in share price before and after the five major political parties' movement.8 Organization of the Study Chapter 1: First chapter deals The whole study will be divided into following five chapters: with introduction. Chapter IV: Chapter V: This chapter includes the brief outline of stock market in Nepal. statement of problem. 9 . 1. method of data analysis and research variables etc. Null Hypothesis: There is no significant change in share price before and after Nepal's entry on WTO on Bhadra-25. 2060 (Sep-11. 2003). 2060 (August-27. 5. 2003). It includes review of previous unpublished Master degree thesis. books. 2003). 4. Alternative Hypothesis: There is significant change in share price before and after the Nepal's entry on WTO on Bhadra-25. Alternative Hypothesis: There is significant change in share price before and after the rupture of peace-talk and re-starting war at Bhadra-10. The fifth chapter. journals. It includes research design. limitation of the study and organization of the study. articles etc. Chapter III: Third chapter explains the research methodology used in the study. This includes background.

Chapter VI: The sixth & last chapter summarizes the main conclusion that flows from the study and offers suggestion for further improvement and conclusion of the study. 10 .

So. a better understanding of these determinants may increase investors' confidence in the stock market and thereby enhance the effectiveness of corporate resource allocation.1 Conceptual Framework: 2. The history of capital market is not so old for Nepalese context. in this chapter. The number of listed companies and their 11 .2 REVIEW OF LITERATURE The basic concern of the study is to focus on the pricing behaviour of the stocks of the companies listed in Nepalese Stock Exchange. the capital market is the market for long term borrowing and lending. Hence more and more concerns over pricing behaviour are arising and most of the concerned books bear some paragraph on this issue. individual as well as corporate. Therefore. Therefore it includes both the new issue market and the old market. In capital market demands for funds comes from agriculture. that are turned into investment through new capital issue and also new public loan floated by government and semi government bodies.1 Capital Market: A place where long term lending and borrowing takes place is known as capital market. 2.1. The price behaviour of the stock and its trading activity has got the tremendous concentration in security investment. Capital market is concerned with long term finance.CHAPTER .S. So. The Capital Market was developed by the establishment of Security Exchange Center on 2033 B. The primary instruments of the capital market are stock and bonds (equity and debts). industry. widely it consists of series of channels through which the saving of the community are made available for industrial and commercial enterprises and authorities. It is concerned with that private saving. institutional investors and surplus of government. an attempt is made to review some of the literature concerning the stock market in Nepal and aboard as well as the market price behaviour. trade and government while the supply of funds comes from individual or corporate savings.

In fact. Securities market facilitates the sale and resale of transferable securities. The security market can be defined as a 12 . (Sharma. is such a market mechanism which mobilized the fund of savers to the users and thus this financialization boosts the industrialization and trading activities. 2.trading was very negligible until the government of Nepal has made economic reforms along with broad financial policy in the process of economic liberalization. 2002:16) There are two important functions of securities market.1. The most effective use of idle and surplus resources can be brought into practice only by means of market mechanism. So. if facilities for transferring of existing securities are abundant. Security market. While the first aspect is obviously much more important from the point of view of economic growth. the raising of new capital is considered assisted as the buyer of a new issue of security become confident that whenever he wants to get cash he can find a buyer of the security without much difficulty. namely the raising of funds in form of shares and debentures and trading in the securities already issued by companies. (Levine. As they were established as public companies. the second aspects is also considerably important. Thus the liquidity of the stock market affects the raising of new capital from the market. which will bring the positive result to the economy as a whole. The privatization of public entities has been started and various banking and finance companies as well as other companies in the private sector are being established with local and foreign investments. This aspect is called the liquidity of the stock market.2 Security Market: Security Market interchangeably known as the integral part of capital market is in fact basis of the economy of a country. these companies have to issue some of their share of the general public. a structural network of savers and users of fund. the development of the security market in Nepal takes its pace only the establishment of these banking and finance companies. 1992: 33) Security market sets a price for the securities it trades and makes it easy for people to trade them.

generally of medium to longterm maturities. dealers and market makers. by and large.mechanism for bringing together buyer and sellers of financial assets to facilitate trading. A continuous market also reduces the 13 . (Winfield. Brokers bring buyer and seller together with themselves actually buying or selling. 1992: 457) 2. It is doubtful that many people would be willing to invest under such conditions. The key function of securities exchange is to create a continuous market for securities at a price that is not very different from the price at which they were previously sold. one can. government and public organizations. One may like to buy more shares or selling existing shares from time to time when he is in need of money or when he wants to shuffle his portfolio. Without exchanges. (Gitman. investors might have to hold debt securities to maturity and equity securities indefinitely. Since the stock exchange is a place where a large number of buyers and sellers congregate. 1985: 22) Most of the investors are attracted to the equity shares because of its marketability and liquidity. issued by companies. Securities market is classified into two.1. Broker and dealer come together organized market or in stock exchange. The stock exchange provides market in a wide range of traded securities. dealers set price at which they themselves are ready to buy and sell (bid and ask price respectively). The continuity of securities market provides the liquidity necessary to attract investor's funds. The investor can convert his shares into cash at the prevailing market prices readily. easily find his counterpart for sale or purchase of shares.3 Stock Exchange: The stock exchange is an institution where quoted securities are exchanged between buyers and sellers. Secondary markets are created by brokers. the market in which new securities are sold is called the primary market and the market in which existing securities are resold is called the secondary market. The existence of a stock exchange facilitates all these functions without which it is almost impossible to do so.

Enable transaction to be made at as low cost as possible or minimization of transaction cost. Along with this. 1992: 458) The securities exchanges help to allocate scare fund to the best uses. evaluation of securities. canalization of savings and widening the share ownership etc. However. Since the market may quite big. Different markets do this in different way and different ways of organizing a market affect how closely the market approaches the ideal of fair prices. safety of transactions. besides these functions. there are three things a security exchange must do: • • • Determine a fair price for the securities it trades or price discovery function. no single buyer or seller can influence the price of a share to any significant extent. they allow investors to access the securities risk and return and to move their fund into the promising investments. Price discovery is the process of arriving at fair prices for securities. Its value depends on expectation of the amount of those benefits and evaluation of risk involved. However.volatility of security prices further enhancing liquidity. An efficient market is one that allocates fund to the most productive uses. a very 14 . Main Function of Stock Exchange: Price Discovery Security is a legal representation of the right to receive future benefits under conditions. Expectation and evaluation reflect both the information available and the conclusions people draw from that information. there is lot of functions of security exchange such as ready market and continuous market. Fair price indicates the compromise between fair offer price (lowest price at which any well informed trader willing to sell) and fair bid price (highest price any well informed buyer is willing to pay). Enable transaction to be made at this price quickly and easily or provision for liquidity. (Gitman. That is by disclosing the price behavior of securities and requiring the disclosure of certain corporate financial data.

that the price and volumes of its past transactions are meaningful indications of the probable relationship of the future and demand pressure it is likely to encounter in the market and that such relationship is the most important element in determining the probable direction of the price movements. capitalized at 'notional rate of interest' the rate which will prevail if and when all the liquid savings are employed into productive purposes. major of them are economic. non-economic and market factors. The price is determined by the point of equilibrium between supply and demand. Dividends are strongly influenced by the earnings power of the 15 . There are many other reasons that causes the stock price fluctuation. 1982: 148) 2.4 Price Determination: The share price is determined in the floor by the interaction of market forces i.1. demand and supply.e. which also the necessary pre-condition for approaching to the fair price. through its continuous process of evaluation. The price of a given stock is determined exclusively by the interacting forces of supply and demand converting on such stock at a given time. the shifting of this balance results in incessant adjusting of price in search of the ever-changing new equilibrium. as close as possible to investment value based on present and future income yielding prospects of various enterprises. Then market price moves upward and downward. Dividend is the most important factors on the determination of stock price. 1980: 85) The stock exchange produces.important fact that should not be forgotten is the concept of ideal market or market efficiency. In the securities market there is a great importance of demand and supply for price fixation. (Gupta. prices of securities. In an ideal market value of securities equal its price of securities and prices reflects all available information about the market. (Ackerman.

Fundamentalists and Technicians. There are essentially two schools of thought to explain the stock price behavior. “Prior to the development of the efficient market theory. is strongly influenced by interest rates. 2. In this way. contribute to making up the economic factors influencing stock price. such as administrative changes. that influences the stock prices. in turn.5 Theory of Price Behavior The forces of supply and demand interact to determine a stock market price. which includes technical analysis theory. They are:i) ii) Inefficient Market Theory Efficient Market Theory the company. investors were generally divided into two groups. The next influencing factors are non-economic factors. such as technological advance and the like. 1986: 347) The two groups are analyzed as follows: Technical Analysis 16 . or internal factors of the market. which together with interest rates and business cycle trends. Besides these factors the of stock prices are influenced by the corporate the performance of the market. the most fundamental factor in stock price fluctuation lies in changes in corporate earnings. If demand is high and supply is low then the price of stock goes up and vice-versa. company’s policy regarding capitalization of earnings as well as government rules & signaling effect Inefficient Market Theory: Conventional approach has considered that market is inefficient.1. change in the weather and other natural conditions. Similarly the other influencing factors are market factors.firm.” (Reilly. and changes in cultural conditions. There is a very close correlation between corporate earnings & dividends. may be cited as the third category. Earning power. considering of the tone of the market and supply-demand relations. including changes in political conditions.

Aside from the effected of minor fluctuations in the market. The tools of technical analysis are therefore designed to measure supply and demand. The basic assumptions underlying technical analysis are listed below: Market value is determined solely by the interaction of supply and demand. as they are commonly called. and some are used to predict both the action of individual securities and the market action. study these charts in an effort to find meaningful patterns to predict future prices. both rational and irrational. no matter why they occur. The changes occur in financial and economic variables are to be adjusted in the light of the present situation. Technical analysis theory of share price behavior is based on past market information. some are used to predict the movements of a market index. Typically. stock prices tend to move in trends that persist for appreciable lengths of time. Technical analysts or chartist. believe that they can discern patterns in price or volume movements. can be detected sooner or later in charts of market action. it is believed that knowledge of past patterns of share prices will help to predict future prices under similar circumstances. Changes in trends are caused by shifts in supply and demand. technical analysts record historical financial data on charts. On the assumption that history tends to repeat itself. Supply and demand is governed by numerous factors. It involves the study of past market behavior with reference to various financial and economic variables are to forecast the future. Technical theory involves study of the past volume and price data of the securities to predict future price fluctuations. and these recurring patterns can be used to forecast price movements. Shifts in supply and demand. and that by 17 .Technical analysis is based on the widely accepted premise that security prices are determined by the supply of and demand for securities. Some chart patterns tend to recur. Some charting techniques are used to predict the movements of a single security.

It helps us to act safe in market both in bullish and bearish market. belief that these past movements are very useful in predicting future movements. the trend will be down as there are more sellers than buyers. they believe. accumulation and distribution. and if the forces of supply and demand are nearly equal. the market will move sideways in what is called a "trading range". when demand exceeds supply. new information will enter the market and the market will begin to trend again either up or down. and trends lasting for a period of months are major trends. the trend will be up as buyers "bid up" the price. A trend indicates there exist an inequality between the forces of supply and demand. depending on whether the new information is taken as positive or negative. They read charts much like ancient astrologers read the stars. Technical analysis comprises many different subjective approaches. Trend which are very brief are called minor trends. they can use this accumulated historical information to predict the future price movements in the security. Eventually. Dow Theory The Dow Theory is one of the oldest and most famous technical tools and was originated by Charles Dow. Price moves in trends. looking for "head and shoulders" formations. those lasting a few weeks are known as intermediate trends. Technical analyst believes in the theory behind chart formations and patterns. Certain patterns or formations that appear on the charts have a meaning and can be interpreted in terms of probable future trend development. reflect the patterns of buying and selling.observing and studying the past behavior patterns of given stocks. These. Such changes in the forces of supply and demand are usually readily identifiable by the action of the market itself as displayed in the prices. or market psychology. but all have one thing in common that is. When the supply of a stock is greater than the demand. By analyzing trend lines we can determine what trend is in force. who founded the Dow-Jones 18 . Stock prices always move in trends because of an imbalance between supply and demand.

earnings. governmental actions. Secondary Movements: Secondary movements are sometimes called corrections which last only a few months. 3. The first is the narrow movement form day to day. The second is the short-swing. firms’ competitor's market conditions and many other factors. Dow Theory practitioners refer to these three components as: 1.return framework based upon earning power and the economic environment. According to Charles Dow. Tertiary Movements: These are simply the daily fluctuations. their management. dividends and management in order to calculate an intrinsic value for firms’ securities. (Francis. The principal decision variables ultimately take form of earrings and value with as risk. its competitor and pertinent company information like product demand. industry and company statistic. “Fundamental analysts believe into companies’ earnings. Primary Trends: They are commonly called bear or bull markets. Fundamentalists forecast stock price on the basis of economic. firm’s financial statement. running from two weeks to a month or more. The analyst who believes on fundamental facts to determine the intrinsic value of stock is popularly known as fundamental analyst or fundamentalist. all going at the same time. Fundamental Analysis Fundamental analysis approach involves working to analyze different factors such as economic influences. the market is always considered as having three movements. industry factor. 1986: 524) 2. Nonetheless. the third is the main movement covering at least four years in duration.Company and was the editor of The Wall Street Journal around 1900. Delineating primary trends is the primary goal of the DOW theorists. economic outlook.” (ibid) 19 . The Dow Theory asserts that daily fluctuations are essentially meaningless random wiggles. The Dow Theory is used to predict traversal and trends in the market as a whole or for individual securities. the chartists should plot the asset's price or the market average each day in order to trace out the primary and secondary trends.

“The value of common stock is simply the present value of all the future income which the owner of the share will receive”(Francis. 1978: 886). a new piece of news is released. the Sharpe-Lintner asset pricing model assumes a market of risk-averse consumers who can make portfolio decisions on the basis of the means and standard deviations of one period portfolio returns. was accomplished by Sharpe(1964) and Lintner (1965) (Stephen. and the development of the CAPM. as a result of new information. In other words. There are various models developed by fundamentalists to reflect the price of the securities. securities market prices will adjust towards the new values. Some of them are as follows: Capital Assets Pricing Model (CAPM) The basic foundation of the theory was laid down in the microeconomics studies of mean variance choice by Mrkowitz (1959) and Tobin (1958). But in practice. good anticipation of cash flows and capitalization rate corresponding to future time period. first it is not known in advance what the appropriate discount rate should be for a particular stock. which should in principle be equal to the present value of the future stream of income from that stock discounted at an appropriate risk related rate of interest”(Bhalla. “ The fundamentalists maintain that any points of time every stock has an intrinsic value. Therefore fundamentalists estimate their intrinsic value by studying in detail of all matters that is relevant to company. implicitly assuming that these standard deviations exist (Fama. The intrinsic value is the true economic work of financial assets. The CAPM substantiated the idea that. Price changes as anticipation changes which in turn change. 1983: 283). Therefore the actual price of security is considered to be a function of a set of anticipation.e.The objective of fundamental security analysis is to appraise the intrinsic value of a security.1986: 398). Like the portfolio models of Markowitz and Tobin. in competitive 20 . 1971: 30). The critical extension to equilibrium in the capital market. And the actual price should reflect intrinsic value of the stock i.

the market is competitive. 1978: 886) CAPM is concerned with two key questions: • • What is the relationship between risk and return for an efficient portfolio? What is the relationship between risk and return for an individual security? The CAPM is based on the following assumptions: • Individuals are risk averse Individuals seek to maximize the expected Individuals have homogeneous expectations • • utility of their portfolios over a single period planning horizon. risk free rate of interest.equilibrium. securities are completely divisible. assets earn premium over the risk less rate that increase with their risk.(Stephen. Gorden’s model: As per the Gorden’s model about relationship of dividend policy and stock price. investors are not indifferent between current dividends and retention of earnings. there are no taxes. expected returns & standard deviations. there are no transaction costs. they have identical subjective estimates if the means. variances and co-variances among returns. rather the own or intrinsic risk of the asset. • is given. An increase in dividend payout ratio leads to increase in the stock prices for the reason that investors consider the dividend yield is less risky than the expected capital gain. by showing that the determining influence on risk premium is the covariance between the asset and the market portfolio. Similarly investors required rate of return increases as the amount of dividend The quantity of risky securities in the market 21 . • • Individuals can borrow and lend freely at a The market is perfect.

b) Normal Firm (r=k): The price of share remains constant regardless of change in dividend. Thus the growth rate (g=br) is constant forever. It means dividend and stock price are free from each other in normal firm. It means high dividend leads to increase in share prices. do not exist. Internal rate of return (r). K>g. The stock price will be increased with the increase in the retention ratio of the firm 22 . J. It means dividend and stock prices are positively correlated with each other in a declining firm. Therefore dividends and stock price are negatively correlated in such firms. The relationship between firms internal rate of return and cost of capital are the determining factors to retain profits or distribution of dividend. Walter on the relationship of dividend and stock price. • • • • As per this model. dividend policy of a firm affects its stock price. • • • • The model is based on the following assumptions: The firm is an all-equity firm. The firm and its stream of earnings are perpetual. The corporate tax. This means that there exists a positive relationship between the amount of dividend and the stock prices. No external financing is available. E. appropriate discount rate (Ke) are constant. c) Declining Firm (r<k): The share price tends to rise in correspondence with rise in dividend payout ratio. E. The retention ratio (b) once decided upon is constant.decreases. The discount rate is greater than growth rate. the relationship between stock price and dividend varies on the following stages: a) Growth firm (r>k): In case of growth firm the share price tends to decline in correspondence with increase in payout ratio or decrease in payout ratio or decrease in retention ratio. Walter’s model: As per the study of J.

as per Walter zero dividend policy will maximize the market value of share for growth firms. Assumptions of Walter’s model: • • • • • Retained earnings constitute the exclusive sources of financing. Value of earning per share (EPS) and dividend per share (DPS) are remain constant. Thus. The firm does resort to debt or equity financing. The relationship between stock price and dividend varies on the following stages: a) Growth Firm (r>k): If the firm’s internal rate of return exceeds the cost of capital such firms are known as growth firms. The firm has perpetual life. The firm’s internal rate of return and its cost of capital are constant. such firms are known as declining firms. The relationship between dividend and stock price is negative on such firms. It means that more dividend leads to decrease in stock price and zero dividend will maximize the market value of shares for such growth firms. such firms are called normal firms and there is no role of dividend on such firm’s stock price. Declining Firm (r<k): If the firm’s internal rate of return is less than cost of capital. The relationship between dividend and stock price is positive that is increase in dividend per share leads to increase in stock price of such firms.when the internal rate of return is greater than the cost of capital. The firm distributes its entire earnings or retains it for immediate reinvestment. Normal Firm (r=k): If the firm’s internal rate of return and cost of capital are equal. Dividend payout ratio does not affect the value of share whether the firm retains the profit or distributes dividend. b) c) 23 .

In particular it means: a) exchange efficiency (b) production efficiency and (c) information efficiency. 1976: 133). “In an efficient market security prices ‘fully reflect’ available information” (Fama. it is analyzed and interpreted by the market. An efficient market can exist if the following events occur: 1) A large number of rational.” (Sharma. there is positive relationship between dividend and price of stock in declining stage of firm. As soon as a new piece of relevant information becomes available. Regardless of the form of information. it is the central issue of the efficient market concept. Efficient Market Theory: In a competitive market. in normal firm there is no relationship between dividend and stock price. The result is a possible change in the existing equilibrium price. In the same way. valuing and trading 24 . it is the key to the determination of stock prices. 2002: 27) The word “Efficiency” as applied to securities market has unfortunately been used to represent a variety of logically distinct concepts. In this study. the equilibrium price of any goods or services at a particular movement in time is such that the available supply is equated to the aggregate demand. This price represents a consensus of the members trading in the market about the true worth of the good or service. it is concerned only with informational efficiency.Thus. and (b) to aid the individual investor. “The role of information is two-fold: (a) to aid in establishing a set of security prices. therefore. The new equilibrium price will hold until yet another bit of information is available for analysis and interpretation. Walter concluded that when the firm is in growth stage then dividend is negatively correlated with price of share. profit maximizing investors exist who actively participate in the market by analyzing. who faces a given set of prices. based on all publicly available information. such that there exist an optimal allocation of resources among firms and an optimal allocation of securities among investors. Similarly. in the selection of an optimal portfolio of securities.

(Charles. In such a world. “An initial and very important premise of an efficient market is that there are large numbers of knowledgeable and profit maximizing investors adjust the information rapidly. Competition among participants to secure useful information will drive security prices form one equilibrium level to another so that the change in price in response to new information will be independent of the prior change in price. causing stock prices to adjust accordingly. In doing so they collectively ensure that price movements in response to new information are instantaneous and unbiased and will ‘fully reflect’ all relevant information. acting in their own selfinterest.stocks.” (Bhalla. Price change will be random walk in response to the information.” (Reilly. the current prices of a security obviously “Fully Reflect” all available information. every one knows all possible-to-know information simultaneously. market participants. use available information to attempt to secure more desirable (higher returns. ceteris paribus) portfolio position. and behaves rationally. 1974: 2). “in a perfect and competitive economy compared of rational individual with homogeneous beliefs about future prices. by any meaningful definition present security prices must fully reflect all available information about future prices. one participant alone can not affect the price of a security. These investors are price takers. that is. 4) Investors react quickly and accurately to the new information.” (Rubinstien. Similarly. 3) Information is generated in a random fashion such that announcements are basically independent of one another. 2) Information is free of cost and widely available to market participants at approximately the same time. the only price change that would occur is due to the result from new information. 1975: 812) In an efficient market. interprets it similarly. “In an idle efficient market. 1943: 425) In such a market. 1986: 166) “The degree of market efficiency has important implications for the economy and for the investment 25 .

” (Bhalla. They are explained as follows: a) Weak Form Market Efficiency: “Weak form market efficiency hypothesizes that today’s security prices fully reflect all information contained in historical security prices. 1997: 746) In such a market.” (Weston and Copland. 1974: 3) The conclusion is that – “In an efficient market there are neither free lunches nor expensive dinners.” (Cheney. all prices are correctly stated and there are no “bargains” in the stock market. It is not possible to systematically gain or lose abnormal profits from trading on the basis of available information. Such efficiency will produce prices that are appropriate in terms of current knowledge. Existing model of efficient markets imply that all relevant information regarding given stock is reflected in its current market price. 1975: 815) One set of test of market efficiency examines the informational efficiency of security prices. it is important that security prices provide accurate signals that can be used to allocate capital resources correctly. “Efficient market theorists believe that some do better then average because of luck. This notion of market efficiency can be divided into three categories based on type of information used in making market decisions.decision-makers.” (Rubinstien. In fact they suggest that the ‘traders’ – those who buy and sell their stocks frequently – do less well than the stock market averages by an amount equal to the commissions they pay. In an economic sense. Mis-priced security result in incorrect allocation of capital. No one can consistently do better than the average. “Efficiency in this context means the ability of the capital markets to function so that prices of securities react rapidly to new information. and investors will be less likely to make unwise investments. A corollary is that investors will also be less likely to discover great bargains and thereby earn extraordinary high rates of return. This implies that no investor can earn excess returns by developing trading rules 26 . 1996: 93-94).

” (Jones. excess rates of return by using publicly available information in a superior manner. It contains all publicly available data such as earnings. A market that quickly incorporates all such information into prices is said to be semi-strong efficient. Thus. this version refers to monopolistic access to information by certain market participants. including information that may be restricted to certain groups such as corporate insiders and specialists on the exchanges. NEPSE price information or published investment advisory reports. then only a few than what could be earned by using a naïve buy-and-hold strategy. dividends. “An extreme version of the strong form holds that all non public information. new products development. financing difficulties and accounting changes. is immediately reflected in prices. no investors could earn excess return using publicly available resources such as corporate annual reports.” (Francis.1 : Market Efficiency in Three Information Level Strong Form All Information Semi-Strong Form Public Information c) Weak-Form Market Data 27 . 1996: 94) b) Semi-strong Form Market Efficiency: It says that security prices fully reflect all publicly available information. “If the semi-strong hypothesis is true. In effect. public and non public. over a reasonable period of time. no group or investors should be able to earn.” (ibid) Chart: 2. stock split announcements. which asserts that prices fully reflect all information.based on historical price or return information” (Weston and Copland. 1986: 608) Strong Form Market Efficiency: “The most stringent form of market efficiency is the strong form. 1943: 429) In such kind of market.

they differ only in the degree of market efficiency. In 1933. Alfered Cowels and Herbert E. It is necessary for the weak form hypothesis to be true in order to the semistrong and strong form hypothesis to be true. He also concluded that the current price of a commodity was an unbiased estimate of its future price. Strong-form efficiency encompasses the weak and semistrong forms and represents the highest level of market efficiency. In 1927. In 1937.These three hypotheses are not mutually exclusive. After the discovery of this model.2 Review of Stock Market in International Context: Numbers of research studies have been performed internationally on the stock market. 2. large numbers of studies have been done throughout the world. Some of them are as follows: In 1900. Louis Bachelier first tested the random walk model. He presented the evidence that the commodity speculation in France was a fair game. He tested the model in commodity prices and found that those prices followed a random walk. Jones reported that stock prices moved with predictable trends. They gave a controversy to the random 28 . It is notable point that a semi-strong efficient market encompasses the weak form of the hypothesis because price and volume data are part of the larger set of all publicly available information. Alfered Cowels found little evidence that stock market analysis could predict future prices. Slutsky proved that the randomly generated price changes look like stock price changed and that they appear to exhibit cycles and other patterns.

V. 1995 to Dec-28. In 1959. September 1962. He further observed that the first difference of these two series produce the same pattern. The time periods covered started from end of 1957 to 26th. H. In 1953. Fama's study (1965) on the random walk model was one of the best definitive and comprehensive ever study conducted. He analyzed the data by serial correlation coefficient and concluded that the subsequent stock price movement forms random walk. Kendall made significant contribution to advance in the study of the random walk model.walk model as valid share price behavior model in USA. Moore (1962) studied weekly price changes of 30 randomly selected stocks for the period 1951 to 1958 and found an average serial correlation coefficient 1. Roberts carried out simulation tests by comparing the simulation of random numbers and the Dow Jones Industrial Average Index (DJIA) for about one year starting from Dec-30. He employed the statistical tools such as serial correlation and runs tests to draw inference about dependence of the price series.06. He tested the model on the weekly price changes of the 19 indices of British industrial shares and in the spot price series of cotton (New York) and wheat (Chicago). he suggested runs analysis for testing independence of price changes. In particular. 1956 and found similarity between these two series. He calculated auto correlation coefficient for daily change in 29 . He observed the daily proportionate prices of each 30 individual stocks of the Dow Jones Industrial Average. He showed that the successive price changes are statistically independent to its past price changes. The value was extremely low and indicated that the weekly change data had almost no power in predicting future prices changes. His work was significant in that he gave a number of methodological suggestions for testing what he calls the chance model. This finding remained a challenge against the random walk hypothesis for more than two decades.

06 to the largest 0. Fama and French (1998) pushed the common expected returns argument for market efficiency one step further. which suggests that it reflects variation in a common premium for maturity risks. They find that the variation in expected returns tracked by D/P or the default spread (the slopes in the regressions of returns on D/P or the default spread) increase from high grade bonds to low grade bonds. Fama concluded. 11 out of 30 stocks had correlation coefficient more than twice their computed standard errors. the variation in expected returns tracked by the term spread is similar for all long term securities (bonds and stocks).30. (Fama. probably unimportant for both the statistician and the investor". which is near to zero.123. He calculated auto correlation coefficient for daily change in log prices for lag from 1 to 30 and found that the coefficient for daily changes in average was +0. The coefficients ranged from smallest 0. It is a mechanism for the 30 . 1991: 1584) C. nine and sixteen days to examine the possibility if price change across longer interval show dependence. Gupta had commented that the capital market serves as a link between suppliers and users of finance. They argued that there are systematic patterns in the variation of expected returns through time that suggested that it is rational.30. which is near to zero. However. But on the daily price change in log prices for lag from 1 to 30 and found that the coefficient for daily changes in average of +0. He also calculated serial correlation for lag from 1 to10 for non-overlapping differencing intervals of four. But on the daily price changes. All the results are again not significantly different from zero. and from large stocks to small stocks.B. This ordering corresponds to intuition about the risks of the securities. "Dependence as such as a small order of magnitude is from a practical point of view. from bonds to stocks. Roa and Mukherjee (1971) applied spectral analysis to weekly prices of an aluminum company's share and found no evidence contrary to random walk model. On the other hand.log price series.

but investors are often reluctant to relinquish control of their savings from long periods. Nepal etc begins to feel its necessity.S. A senior economist. but later as a passage of time even the developing countries like India. has mentioned in his article that stock market may affect the economic activity through the creation of liquidity. Bangladesh. An efficient capital market is an indispensable pre-requisite to economic development. Thus capital market works as a powerful medium between potential investors and users of finance. Now they adopted it too. By return to capital is meant the algebraic sum of increment in the value of yield (Dookha. 1978: 325). This fundamental relationship shows that the stock price is meaningful in the sense of reflecting real economic variables. The study conducted by Bary Borsworth on ' Industrial Production and Price of Common Stock'. In connection with the necessity of capital market. 1960: 1). The investment decision in the stock market is a function of the prevailing market price and return to capital.K. Many profitable investments require a long-term commitment of capital.L. Simha in his book "The Capital Market in India" has observed that capital is an extremely fascinating subject.mobilization of public savings and channeling them in productive investments (Gupta. Philippines. the capital market has a rather important role to play (Simha. U.A. 1953-1975 has revealed that the stock market and economic activity move in similar cyclical patterns. Liquid equity markets make investment less risky and more attractive because they allow savers to acquire an asset-equity and to sell it quickly and cheaply if they need access to their savings or want to alter their 31 . Germany etc.N.. Ross Levine in the finance and private sector department division of World Bank's Policy Research Department. 1962: 82). Formally the necessity of the capital market was felt not only by the developed countries like U.. S. In fact even as regards the resources for the public sector.

Thus. Their investment value and average market price tend to increase irregularly but persistently over the decades as their net worth builds up through the reinvestment of undistributed earnings. Further the writer says that. then these expectations need not be the same across traders. on the article on Financial Journal writes that information plays important role in the discovery of assets (securities). By facilitating long-term.portfolios. to give way to hope. fear and greed. liquid markets improve the allocation of capital and enhance the prospect for the long -term economic growth. as in microstructure models. Traders with superior information will move prices toward full information levels. more profitable investments. 1995: 35) Hara. but if traders have diverse information sets. the adjustment of prices of full information values can differ widely 32 .” “Note that my arguments do not imply that markets are necessarily inefficient. i. old information is obsolete. there are no arbitrage opportunities here.”(Chandra. of asset prices. uniformed investors demand compensation for portfolioinduced risks which they cannot diversify. The innovation here is the argument that when information is asymmetric. However. finance researchers have long focused on the information efficiency of asset prices. “The premise developed in this talk is that liquidity and price discovery are important dimensions of asset markets and. most of the common stocks are subject to irrational and excessive price fluctuations in both decisions as the consequence of the ingrained tendency of most people to speculative or gamble. by extension. Market prices can be martingales with respect to information. companies enjoy the permanent access to capital raised through issues. Further by making investment less risky on more profitable stock market liquidity can also lead to more investment (Levin.e. 1996: 133). nor is there the provisional free lunch. “Common stock has one important investment characteristic and one important speculative characteristic. That information should affect asset prices is hardly new. but continuously attaining full information levels is not credible– new information arrives. At the same time.

journals and research studies concerning stock market and its pricing behaviour. Although the book is written in the early stage of the development of stock market. Mahat made the first priority to establish stock exchange for the development of stock market. there are limited books. Similarly the next book by Dr. So Dr.across markets that are deemed efficient. R.”(Pradhan.S. 2003: 1351) 2. He further points out that some conscious and educated people of urban areas are also not investing in the industrial sector instead they are investing on the real estate especially building construction. As per the book. the available articles. which are related to stock market are consulted and reviewed. 1994: 42-43). In his book he writes about the Stock Market behaviour in Nepal that “A number of studies have been conducted on the stock market behaviour in developed and big capital markets but their relevance is yet to be seen in the context of smaller and underdeveloped capital markets. the stock market behaviour in smaller and underdeveloped capital markets is thus one of the important areas of the study in 33 . books. A book about capital market by Dr. Pradhan's is very valuable for the purpose of analyzing the capital market in Nepal. previous research works. And it is this difference in adjustment that gives rise to the effects discussed here.3 Review of Journals.S.” (Hara. Books and Articles of Stock Market in Nepalese Context: As stock market is in infancy stage in Nepalese context. R. the limitations of Nepalese society regarding the investment in stock market is still reality of Nepalese Capital market. So.Mahat entitled "Capital Markets Financial Flows and Industrial Finance in Nepal" was written in the early period of the development of capital market and before the establishment of stock exchange. He also writes that Nepalese stock market is still in infancy stage and some drawbacks to the development of stock markets are strong historical and social reasons as well as mass poverty and illiteracy in Nepalese society.

Basu (1983) also finds earnings-price ratio is explaining the cross-section of average returns on US stocks. early stage of growth. and this chapter prepared with reference to Nepal is a small attempt towards that end. limited movement of share prices. This chapter can be considered important. Reid. "In Nepal. Viewed in this way. He finds that average returns on large stocks are lower while average returns on small stocks are higher. and Black(1972). Thus it is felt necessary to study stock market behaviour in the context of smaller and under-developed capital markets. Again. the listing of shares in Stock Exchange Center (SEC) and their trading in the stock market is a recent phenomenon. Linter (1965). and limited information available to investors. Chan Hamao. Similarly. Ball (1978) finds that earnings price relation is likely to be higher for stocks with higher risks and expected returns. and Lakonishok (1991) find the strong role of book-to market equity in explaining the cross-section of average returns on Japanese stocks." (ibid) Among the various empirical contradictions to the Asset Pricing Model of Sharpe(1964). the most prominent is the size effect of Banz(1981). Though there are these findings in the 34 . Information on stock market behaviour in such smaller and underdeveloped capital markets would help development of realistic theoretical models and formulation of relevant hypotheses for empirical testing in finance. this chapter is expected to provide at least some insights into stock market behaviour in Nepal. absence of professional brokers. A number of researchers are available on government owned public enterprises but researches on enterprises whose stocks are listed in SEC and traded in stock market are yet to come up in Nepal. as Nepal has already started the process of privatization of public or government owned enterprises. and Lanstein (1985). The Nepalese stock market is characterized by low trading volume.finance. The positive relation between leverage and average returns on US stocks and a firm’s book value of common equity to its market value is documented by Stattman (1980) and Rosenberg.

Manohar Kumar Shrestha has focused various issues related to protection of shareholder's expectation.context of developed and big capital markets. market value to book value. Many who could not cope e\with the system of intelligent speculation left the ground. Success of companies directly depends on the protection of their owners. Rekha analyzed in her study. In an attempt to assess the stock market behaviour in Nepal. price earning and dividends with liquidity. But how can this be accomplished is main question. profitability. According to her study. (Shrestha. it specifically examines the relationship of market equity. leverage. May 18. Thus it is necessary to develop a possible guidance for enhancing the efficiency for public limited companies to contribute directly in the growth of national economy on one hand and ensuring handsome return to the shareholders on the other hand to maid their investment meaningful and worthwhile. People turned to price-earning multiples: NEPSE indexes informed trading became sort of a norm when stock market entered 1995. the numbers of buyers gradually came down and so did the prices. the trend of Nepalese stock market and present state of primary and secondary market was found satisfactory. assets turnover and interest coverage. As a result.”(The Kathmandu Post. the overall shareholders' democracy in terms of protection their interest is basically focused on the payment of satisfactory dividend and the maximization of shareholders' wealth by appreciating the value of shares they sold. In the book. "Current status of share market in Nepal". their applicability is yet to be seen in the context of smaller under-developed capital markets. This chapter therefore attempts to assess some of the cross-section behaviour of stock market similar to ones as described above in the context of Nepal. the development of stock market primarily depends on program and 35 . "Shareholder's Democracy and AGM feedback" Prof. At present. 1999: 25) “Investors were enlightened and they stated inquiring about company’s financial health and future prospect before buying or selling shares.1996: 6) Panta.

These two numbers would give a fair idea about company health and then market price would judged through the discount factors based upon one of the sound company’s data. EPS can derived by dividing total net profit after tax by total number of shares and price earning ratio by dividing market price per share by EPS. dealers by increasing investor interest in it. The strategic plan released by securities board can. Therefore. Capital Market is a crucial element in the national economy. trading system for both equity and debt securities. Unless investors begin analyzing the intricate financial 36 . First of all they should know the financial health of that company. 2001: 20) “Investment in share has traditionally been done by rating the institutions on the price of price earning ratio or dividend. Security market experiences both boom and boast soon after the beginning of securities trading through brokers' member in the stock exchange floor. 1999: 10). In Nepal. current year anticipated profit and calculate earning per share and price earning per share and price earnings ratio. Market price is equal to earning per share divided by discount factor. Hardly do investors compare current assets with current liabilities or take a look at the debt equity ratio. For example.” Investors have to learn few things before they make investment on stock. it is difficult to develop more efficient secondary market. energize the investors. Lower the P/E ratio higher the chance of profit with capital gain and others. it could not sustained (Business age. Through the market started to function quickly boosting the price of share to an unexpected level. Its role in reinvigorating and boosting the economic activity in the country holds significant. “Return from investment in stock is not short run phenomenon.their implementation. he/she must see its balance sheet or at least paid-up capital. to a great extent. the overall policy environment has not been conducted to the development of stock market. if somebody want to invest in the share of Standard Charted Bank.” (Business age. last year net profit.

demand for shares of commercial banks outpaced supply and their price boomed. though high dividends are often seen. disclosure of poor and manipulated financial information weak enforcement of regulation absence of instructional investors.4 Review of Unpublished Masters' Degree Thesis: There are many masters' thesis prepared by various researcher in the subsequent previous years. Even officials at the stock exchange and the securities board. Bharat Prasad Bhatta. 37 . investment are made more on an impulse. Now the latest slums in the secondary market. 2. discreetly claimed that the Nepalese stock market is in a nascent stage. resource mobilization has a vital role in the developing economy like Nepal. 2001: 7). other stocks market participants hardly making profit. The development of the Stock market is a must for the resource mobilization. Among them some thesis are reviewed here for analysis of literature. This includes low level of investors' confidence. rather than through market study and credit rating. lack of diversity in the range of financial instruments and the scope of active participation for the various intermediaries limited by vertical barriers. incorporate finance theory as a wasteful use of scares capital. make it more apparent that investment in the past was done on whim. Share investment has traditionally been guided by the investors return. and even they did failing to meet investors expectations. despite a pretty good performance by commercial banks.details of corporate institutions before making investment decision. he focused that. the market cannot develop smoothly. refuting investors’ allegations of the market manipulation and insiders’ trading of last February. Most earning of investor here have been in the form of dividends rather than capital gains.”(Business age 2001:25) “ADB experts have seen many obstacles to the growth of the capital market. And that. With the commercial bank becoming the only potential destination. On the study of Mr.”(The Rising Nepal.

According to the above objectives "Mr. In his research work. which have checked the resource mobilization in the economy. • an environment to rise the trading of share in the stock exchange. In his conclusion he try to show that although it has become late to take steps to overcome such problems of the Nepalese stock market in order to make it active and supportive. Bhatta recommended the following points by his recommendation and conclusion section: • The government should make not only policies for the capital development but also implement these policies market • appropriately.There are various problems of Nepalese Stock market. To diagnose and compare the sectoral financial status of the To analyze the market share prices of the Nepalese stock To find out the impact of the secondary or primary market stock in Nepalese stock market market.Bhatta set the following objectives and followed by the some recommendation too which is given below: • • • • To analyze the trend of the Nepalese stock market. the stock market has a good prospect for the resource mobilization to finance the productive enterprises in the Nepalese economy. 38 . Investment in corporate sector should be encouraged and The regulatory authorities of the stock market should cerate their share should be listed in the stock exchange. and vice versa. • The government should make appropriate policies and for the enhancement of the entrepreneurship programs development in the Nepalese economy. "Dynamic of Stock Market in Nepal" Mr.

Some corporate firms with long history have relatively stable profitable parameters then that of the newly established firms. All other industries have not the perfect correlation between the dividend paid and stock prizes. • • Older firms have been issuing bonus share more times than Dividend per share is relatively more stable than dividend the new one pay out ratio. To explore the signaling effect on stock price. • Corporate firm with long history have a relatively stable profitability parameters than the firm established after the economize liberalization of 1990. • Due to the lack of the proper investment opportunity most of the investors have directed their savings towards the secondary stock market. • There is significant positive correlation between the dividend paid and stock prices of banking and manufacturing industries. to other industries including finance -companies. The study done by Mr. In general it is Dominance of banking sector is prevalent in the market due very new and just started to develop. Ojha denotes that Nepalese stock market is still in developing stage. The findings presented on behalf of the given objectives were: • • Nepalese stock market is in infancy stage.Likewise the main objectives of the dissertation prepared by Mr. That’s why pay out ratio and dividend yield has been highly fluctuating. Similarly dividend pay out ratio and dividend yield is more fluctuating 39 . To examine the relationship of dividend and stock price. Khagendra Prasad Ojha. insurance and manufacturing is not encouraging. entitled "Financial Performance and Common stock pricing" at 2000 were: • • • To study and examine the difference of financial performance and stock price.

runs by signs and runs by length. • To discuss theoretically the movements of stock market prices as predicted by the random walk model. Aryal (1995) has conducted research on ‘The General Behavior of stock Market Prices’. Mukti Pd. 0. he concluded. 0.4 & 5 lag days respectively. He analyzed runs by total numbers of expected runs.” the 40 . He used the serial correlation test and run test as Test Methodology: Serial Correlation Test: He applied serial correlation to test whether the price changes of shares are independent to each other. For this purpose he computed the serial correlation of 1-5 lag days applying the natural logarithm model for daily price changes. “Mr.04 of 1. Results of the findings. The major findings and conclusion of the study are as follows: He found average correlation of 0. • To examine whether the successive price changes of stock market are independent to each other or not? He used the 21 stock (common) out of listed companies in Nepal Stock Exchange through the study consists of daily closing prices for almost 8 months period.109.102. And the results of runs test were also consistence with the results of serial correlation tests. • To develop the empirical probability distribution of successive price changes of an individual common stock and a stock market as a whole.045 and 0.and there is positive relationship between dividend and stock price of the firms.3. Runs Test: In order to test the random walk model he also applied run tests. The results of estimated co-efficient of serial correlation were quite large and average estimates of co-efficient were substantially positive in most of cases except of few individual cases.088. 0.2. However it may be affected due to the change in time period and other constraints at present. The objectives of the study were.

stock price changes can be explained as serially positive dependent to each other as an adequate description of reality i. price with the help of NEPSE index. 41 . decision on stock investment. So by promoting the stock market in sizeable economic sector raise the economic development by mobilizing swing into productive sectors by making suitable investment for making suitable investment environment different elements like price trend NEPSE index.”(Aryal. today’s price changes of an individual common stock is not as unbiased and independent outcomes of yesterday price changes of Bernoulli process. Further he set the main objective of his study was to study. It shows gap between theory and practice of investment. volume of stock traded. Specifically the objectives were: • • • • • To study and analyze stock price trend and volume of stock To study and analyze the rate of listing of new companies To study and analyze the investors views regarding the To study and examine the signaling factors' impact on stock To suggest the abstract to the interested parties related to traded on the secondary market." Stock Market Behaviour of Listed Joint Venture Company in Nepal” conducted by Mr.e. Dahal says that Stock Market is the backbone of investment sector of the country. rate of listing. examine and analyze the stock market behavior. Bachhu Ram Dahal describes the stock market as the back bone of the country.. Stock market was not properly analyzed for smooth operation of secondary market. 1995: 103) On the research paper on. In Nepalese stock market the study of market behavior is a very useful subject matter if properly analyzes for the development of stock market. Signaling factors should be analyzed. In his conclusion Mr. and maintenance of listed company in Nepal Stock Exchange Ltd. stock market.

stock market is the properly market for the development of the national economy. Stock market will be the strong market for the 42 . It is evident that stock exchange will continue to fulfill their vital functions in the national economy. Most of the investors are complaining that the market makers. So NEPSE should clear this type of charge for the development of stock market. the trend of the price movement. The development of stock market in Nepal is both challenging and difficult. rational investor exist from the Nepalese stock market. independent buyer and seller. public interest towards stock market. information system etc indicates the low performance of stock market. and NEPSES staffs are making coalition for fraudulent activities towards investors. The substantial competition in innumerable buyer and seller determines the prices with a measure of precision that cannot be obtained in other unorganized market. we know that the stock exchange is the place where stock and shares are bought and sold. investment procedure for general public and movement of stock trend in different periods and their cause are not explained. Though the viewpoint of share transition. The data analysis showed that Nepal stock exchange is not providing facilities for investors such as general awareness about investment. well trained manpower and management delay in transfer of shares. So. The problem like lack of strong professional analysis. So long as private enterprises exist.Nepal stock exchange limited is analyzing stock market behavior in very little area regarding the stock market. Investment is the lifeblood of economic development. The role of market players in the market should made effective in promoting capital market on the country by giving proper training and adopting changes environment with modern tools and technique. Moreover there are many other attraction that stock market able to attract the new generation toward it. brokers. So experts should be recruited and analyzed market behavior in efficient way so that all parties interested with stock market can get benefit from this.

the study used simultaneous equation model as developed by Friend and Puckett (1964). Thus. the stock market further requires timely research to explore details of the problem and prospects of stock market in Nepal. The main objectives of that study were as follows: • • on stock price.unemployed young generation to build their career in capital market. • ratio. To explain the price behavior. Mr. i. retained earnings per share is not prominent. 43 . it has lots of prospects of development.e. major problems facing by Nepalese stock market and expectation of future growth. Sadakar Timilsina (1997) has conducted research on “Dividend and Stock Price” The study was carried out by the data for 16 enterprises from 1900 to 1994. From Dahal’s study it seems that no comprehensive research has been conducted in relation to the development of stock market in Nepal. The main findings of that study were as follows: • • • • • The difference between dividend per share Dividend per share affects the share prices Changing the dividend policy or dividend per The difference between stock prices and The difference between stock prices and To identify whether it is possible to increase the market value of the stock changing dividend policy or payout To test the difference between dividend per To determine the impact of dividend policy share and stock prices and stock prices is positive in the sample companies. lagged earnings ratio is negative. variedly in different sectors. share might help to increase the market price of share.

it has overcome necessary to find out whether their findings are still valid. feedback institutional development of efficient market. Studies on dividends conducted in the context of Nepal are based on Secondary data only. 44 . The objectives of the study were: • • To examine the serial correlation of successive daily price changes of the individuals stocks. Mr. the earlier studies on dividends have become old and need to be update and validated because of the rapid changes taking place in financial market of Nepal. The number of companies included in the same was only 16. No study has been conducted on dividends by using primary data as yet. which is quite low. Surya Chandra Shrestha (1999) has conducted research on ‘Stock Price Behavior in Nepal’. To determine whether the sequence of price changes is consistent with changes of the series of random numbers expected under the independent Bernoulli process.• Though there were above-mentioned studies in the context of Nepal. this study aims to examine the efficiency of the stock market in Nepal. He used the as serial correlation test and run test as Test Methodology. There is a need to conduct is survey of financial executives in order to find out more qualitative facts on dividends which can not be determined through the use of secondary data. Moreover. His study period was consists of almost hour and half years. • market • through To determine the efficiency of the stock the To theoretical provide model of efficient policy market towards hypothesis in the Nepalese stock market. This is the first attempt that studies dividends based on questionnaire survey. Tililsina’s study was based on 45 observations. He used the data considering the daily closing price of 30 listed companies’ shares (ordinary) in the NEPSE.

In addition runs analysis also followed the serial correlation result that means there has significant difference between actual numbers of runs for series of daily closing prices changes of the market. In order to test independence of stock prices. 45 . In overall. Run Test: He also. Shrestha. 0.Serial Correlation Test: He applied serial correlation to test the stock price behavior of Nepal Stock Exchange by giving sight in whether the price changes of shares are independent to each other. By the results of his applied models and methodologies he concluded. large number of serial correlation coefficients of the log price changes of the 30 stocks for the sample periods is significantly departed from zero.07. In the study Mr. For this purpose he computed the serial correlation of 1-15 lag days applying the natural logarithm model for daily price changes.0704 for 1.” the successive price changes are not independent random variable for the 30 sample stocks listed in the NEPSE. Therefore. The major findings and conclusions drawn on this study were: After applying the required models and methodologies he found average correlation coefficient of 0. By the study of Mr. In addition runs analysis also followed the serial correlation results that mean there has significant difference between actual numbers of runs for series of daily closing prices changes of the market. He analyzed runs by total numbers of expected runs and runs signs. Shrestha has applied for technical analysis only to get the result of share price behavior and he has not used any fundamental tools for analysis. large number of serial correlation coefficients of the log price changes of the 30 stocks for the sample periods are significantly departed from zero.2055. And for lags 5 to 15 days were less than 0. applied runs test. the random walk theory is not suitable description for the stock market price behavior in Nepal. 0.0825.2 and 3 lag days respectively.

Most of the above stated studies use technical methods and statistical methods like run test. So. 46 . NEPSE trend etc for the analysis purpose. this study tries to analyze the relationship of these factors with the pricing behaviour of the stock of selected companies as well as it also tries to show the influence of the important events happened in the country on market price of the stock. it seems that Nepalese stock market is still in developing stage and it is facing various challenges. Further more it also shows that there are very few research works conducted about the market price behaviour on the stock market. correlation coefficient. More than that none of the studies are concerned about the financial indicators like EPS. DPS and NWPS which are the most influencing factors for the MPS.From the above all studies conducted by various researchers. Only few of the studies use fundamental analysis tools for the research work.

To draw inferences on the market performance of stock market and price formation. while collecting and interpreting relevant data. It prone to error. The first look may not be adequate. Primary sources of data as questionnaire. Thus.RESEARCH METHODOLOGY Research means to search again and again. sources of data and uses of statistical and financial tools are basically explained in this chapter. we deal mainly with the method. Research Methodology. Methodology refers the various steps that are generally adopted by a researcher in studying his research problem along with the logic behind it. CHAPTER . In this chapter. which represent the explanatory and descriptive analysis of the relevant information and data. Simple statistical tools have been used to finish this research works. So. Research methodology is a way to systematically solve the research problem. research design. which are used in the context of our research study. In this regard.3 47 . facts and figures with a view to systematic data collection and data's interpretation. Research is a systematic and organized effort to investigate a specific problem that needs solution. what we are doing at present. different measure have been used. This process is called research. this chapter explains not only talk of the research methods but also consider the logic behind the methods. interview with officials are used to find out the public awareness regarding the investment in the shares. their risks and return and pricing of shares of the selected companies listed in the stock exchange. Both descriptive and analytical types of research are employed to fulfill the objective of research work. which are used in the period of research. We study the social problem again and again to find out the something more about the phenomenon. we enter in to the subject matter again and again and study the problems differently and thoroughly each time.

2 Universe and Sample: The analysis of stock market of the selected banking. NWPS various statistical tools has been used under the phenomena of quantitative research design. Therefore. DPS. The study will explore the collection of data. (Kothari.1 Research Design: Research design is the organized way of research methods or techniques used through the entire study. computation of compiled data and financial parameters. descriptive research design has been used. It is an integrated system that guides the researcher in formulating. To analyze the past phenomena historical research design has been used. behavior or characteristics of a given population and to describe the situation and events occurring at present. financial and insurance companies listed in the Nepal Stock Exchange and information regarding these companies are taken as the total population. "Research Design is a plan. financial and insurance companies and their pricing behaviour largely depends on the number of such companies listed in the Nepal Stock Exchange (NEPSE) and share issuance by these companies. findings. conclusion and recommendations. 3. Similarly to access the opinion. and controlling the study. 1991: 24). tabulation and compilation of data. implementing. to analyze the significant relation between MPS on EPS.The present study is basically related with the Nepalese stock market and the share price behavior of the selected listed companies. More over that share price will be infected by the supply and demand and the supply and demand of such shares depends upon the information available in the market.3. The research design is thus an integrated frame that guides the researcher in planning and executing the research works. all the banking. Due to the low volume and amount of 48 . structure and strategy of investigation conceived so as to obtain answer to research question and to control variances". In the same way.

share transaction and insufficient data. 50% weighted has been given to this banking sector while taking the sampling companies. Out of them 5 from commercial banks. 5 commercial banks (45%) has been taken as sample companies which covers the 50% weighted on total sample companies. which covers 45% of total listed commercial banks sector. 3 from finance companies. 49 . Out of 11 listed commercial bank.1 : Sampling Procedure S No Sector No of Compa ny Listed No of Sample compani es Percenta ge Sample Companies 1 Commerci al Bank 11 5 45% 2 3 Finance Companie s Insurance Companie s 35 13 3 2 9% 16% Nepal Arab Bank Ltd Standard Chartered Bank Himalayan Bank Nepal Bangladesh Bank Everest Bank Annapurna Finance Peoples Finance Universal Finance Himalayan Insurance Everest Insurance 3. Due to the high volume of share transactions and business volume as well as more contribution to the economy in the financial sectors in comparison to others more percentage i. service sector and others sectors have been neglected while taking the sampling companies from the listed companies in Nepal Stock Exchange. sector. which covers 16% of total listed insurance companies. other sectors like Mfg. The samples will be taken using stratified as follows: Table: 3.3 Sampling Procedure For the research work only 10 companies has been taken as sampling companies out of total population. In the same way 3 finance companies and 2 insurance companies have been taken as sample companies out of total listed companies on respective sector.e. which covers 9% of total listed finance companies sector and remaining 2.

Securities Boards office. The questionnaire was consisted of objective 50 . newspaper cuttings.4 Sources of Data The main source for the data collection was the central office of Nepal Stock Exchange (NEPSE).5 Data Collection Procedure: As the study was based on primary as well as secondary data. www. Besides annual report various bulletin available. finance and insurance companies were the major source to get various data about the related company. half-yearly and yearly bulletins published by Nepal Rastra Bank. 3. different books from library. the annual reports of selected banking. journals. Secondary Data: The secondary source of data will be the annual report of the Security Board Nepal. The main source of data is annual report of the SEBO/N. 2002 published by Ministry of Finance and different monthly. Guidelines and unpublished thesis.nepalstock.nrb. For collecting primary data a set of questionnaire was prepared and distributed to the investors. www. The required data will be collected through the corporate office of the security board Nepal (SEBO/N) Primary Data: Primary data will be collected through questionnaire and direct interview of the concerned person in the office. Economic Survey.com . The research is mainly based on secondary data.3. Research work that directly related to financial performance and stock market would form secondary data for the purpose of this study. Thapatali. Similarly. company's magazines etc.sebonp. quarterly.com . periodicals. Trading Index published by NEPSE.org. articles and other publications published by different financial intuitions and other useful resources are also taken into consideration. Significant information will also be collected from Internet and various websites like www. Kathmandu and economic survey published by Ministry of Finance.np etc. information are collected by annual report published by Securities Board Nepal (SEBO/N).

In this model the market value of shares of a company is dependent of the earnings of the company. Hence. Data Analysis Tools: i) Financial Tools: a) Capitalization of Earnings: EPS ratio is used to measure the profitability of a firm from the owner’s view point. P0 = Expected market value of an equity EPS = Earning per share Ke = Cost of capital b) Capitalization of Dividends: Dividend refers the percentage of earnings paid in cash to its stockholders.questions like multiple choice questions and yes / no questions. The rate of earning or the earning per share is capitalized by normal rate of return in order to measure the present market value of the equity share.6 Data Processing Procedure: Data collected from questionnaires were in raw form. The market value of equity share is the capitalized value of the earning per share of a company at the cost of equity (Ke). They were classified and tabulated in the required format and presented in bar and pie diagrams. it will use retained earnings and the amount of senior firm has retained earnings left over after 51 . NEPSE staff and other related parties with stock market. To get reliable information. These questions are related to the Stock market. "As long as there are investment projects with returns exceeding those that are required. P0 = EPS Ke Where. discussions were also conducted with investors. public view toward the investment in the stock. Data collected from secondary sources were analyzed through various financial and statistical tools. their prices and their reaction in the information available in the market about the stocks of related companies. Major findings were based on the analysis and interpretation of data. 3.

" (Van Horne. P0= present market value of an equity. 1990. 2001.9535 4. Therefore.7171 d) Rate of Return on Common Stock (Rj) : Rate of return on common stock can be defined as the change in value plus any cash distribution expressed as a percent of the beginning of period investment value. The rate of return on common stock can be expressed in percentage as follows: Rate of return= ( P − Pt −1 ) + Dt Pr ice Change + Cash Dividend = t Purchase price at the start of the period Pt −1 52 . c) Risk Free Rate (Rf): The risk free rate has been taken from Nepal Rastra Bank (NRB) for different years based on the 91 days Treasury bills issued by NRB which are as follows: Table: 3.5812 4. An investor can obtain two kinds of income from an investment in a share of stock : income from price appreciation or losses from depreciation and income from cash dividend. according to this model.1222 4. If not there would be no dividends. the value of an equity share is the present value of all future streams of cash dividends an investor expects to receive. Hence.5037 2. future streams of cash dividends are to be evaluated and discounted by the cost of equity(Ke). the price they are willing to pay will depend on their expectations of dividends. People make investment in stock because they will get dividend in return. these earnings then would be distributed to stockholders in the form of cash dividends. Under this model.2 : Risk Free Rate Fiscal Year Average Risk free Rate 1997/98 1998/99 1999/00 2000/01 2001/02 3. Ke= The required rate of return for equity Dt= Expected future dividend at each future date t. 20) P0 = ∑ t =1 α Dt (1 + ke ) t Where. 328).financing all acceptable investment opportunities. (Timilsina.

f) Market Return (E(Rm)): Market return is the average return of the stocks of all companies in a industry. E(Rm)= This Year ' s Market Index − Last Year ' s Market Index Last Year ' s Market Index ii) Statistical Tools: a) Mean : Mean of a set of observations is the sum of all the observations divided by the number of observations. Its advantage is that the uncertainty of returns can be summarized into a single easily calculated number. It is a measure of the total risk of the asset. It provides more information about the risk of the asset. It measures the dispersion of returns around the mean. The standard 53 . investors are not compensated for total risk. where. For this research purpose. Pt=Ending stock price Pt-1=Starting Stock price Dt=Cash dividend for time t e) Required Rate of Return (R): Required rate of return is calculated as the risk free rate plus the risk premium on the risk of the particular stock. According to the CAPM the required rate of return on any stock is equal to the risk free rate of return plus market risk premium times stock beta. market return has been calculated by dividing the difference of this year's market index and previous years market index by previous year's market index. R=Rf+(E(Rm)-Rf) βj R=required rate of return on stock j. Total risk contains two parts diversifiable or unsystematic risk and undiversifiable or systematic risk. ∑Χ n b) Standard Deviation : X = It is a quantitative measure of the total risk of assets. Thus. rather they are compensated in the market for facing the systematic risk. Rf=risk free rate of return E(Rm)=market return or average return βj=beta coefficient of stock j. Under the assumption of CAPM.Where.

∑XY = Sum of the product of observations in series X and Y. S . E( r j ) is expected return on assets A c) Coefficient of Variation : The risk per unit of expected return can be measured by the coefficient of variation. is return on asset A. “The closer the value of ‘r’ is 1 or -1.deviation of a distribution is the square root of the variance of returns around the mean. there is perfect positive relationship and if r=-1 there is perfect negative relationship or if r=0 then there is no relation at all. which is computed as follows: C . ∑Y2 = Sum of squared observations in series Y. the closer the relationship between the variables and the closer ‘r’ is to 0 the less close relationship. 1999:234) e) Multiple Regression Analysis: 54 . (Shrestha and Manandhar.y)’ or rxy or simply ‘r’ can be denoted as r= nΣXY − ΣXΣY {nΣX 2 − (ΣX ) 2 } × {nΣY 2 − (ΣY ) 2 } Where. ∑Y = Sum of observations in series Y.V . ∑X = Sum of observations in series X.D. = ∑ r j − E ( r j )] 2 [ n −1 rj Where.D. = S . ×100 Χ d) Karl Pearson’s Coefficient of Correlation: It is a statitistical tool for measuring the intensity or magnitude of linear relationship between the two variables series Karl Pearson’s measure. n = number of observation in series X and Y. The value of the correlation coefficient ‘r’ lies between -1 to 1 that is -1 ≤ r ≤ 1. ∑X2 = Sum of squared observations in series X. If r=1. known as Personian correlation coefficient between two variables (series) X and Y. usually denoted by ‘r(x.

(Gupta. questioner analysis with the help of Micro Soft Excel and multiple regression analysis and t-test have been performed on SPSS (Statistical Program for Social Science). NWPS= Independent variables f) Tools for Testing of Hypothesis (Paired T-test) Paired t-test has been used as statistical tool to test null hypothesis. is called independent variable. The variable whose value is influenced or is to be predicted is called dependent variable and the variable which influences the values or is used for prediction. 1999:298) The multiple regression equation is MPS=a+b1. The result getting form this software has been presented in annex and the relevant information are extracted and filled up where ever needed. The following working formula for t-test has been calculated and interpreted as below: Where.NWPS Where. 55 . there are two types of variables. t = pared t-test s =Standard error n = Number of Observations d t= d n s = Difference between two data Application of Computer Software: To fulfill the study the data has procured and finalized by using correlation coefficient. DPS.Regression analysis means the estimation or prediction of the unknown value of one variable from the known value or variable.DPS + b3. b3= Coefficients of independent variables EPS. b2. valuation of stock. For the test of hypothesis 10 NEPSE index before. In regression analysis. MPS=Market Price per Share (Dependent Variable) a= Regression constant b1. It is a mathematical measure of the average relationship between two or more variables in terms of the original units of the data.EPS+b2. after and during the major events has been considered.

market making for government bonds and other financial services. His majesty's government. The establishment of Securities Exchange Center (SEC) in 1976 was the first and most important attempt made by the government to develop the stock market. consequently. under a program initiated to reform capital markets converted securities exchange center in to Nepal Stock Exchange in 1993 (Kharel. the expansion of the capital market to the desired level had been made in eighth five year plan to reform the capital market. the participation on the ownership structure of the corporate sector was restricted mostly to the Rana family. It was established with the objective of facilitating and promoting the growth of capital market. capital market reform had greatly contributed to the development of primary as well as secondary market for the corporate securities. Nepal (SEBO/N) under the portion of the Securities Exchange Act 1983.STOCK MARKET IN NEPAL The concept of stock market in Nepal is not very old. underwriting. the SEC limited function for trading the government bonds and national saving certificates only. Then it acts as an issue manager for corporate securities and started to list and provides market for the corporate stocks from fiscal year 1984/85 under the Securities Exchange Act 1983. the SEC served to promote the primary as well as secondary market for government and corporate securities from fiscal year 1984/85. The incorporation of the Securities Board. The rise in stock price and the market liquidity for corporate securities were observed immediately after the incorporation of (SEBO/N) and NEPSE for CHAPTER – 4 56 . Before conversion in to Nepal Stock Exchange (NEPSE) it was the only capital markets institutions undertaking the job of brokering. managing public issue. Thus. 2002 :67). Initially. At that time. It is still in infancy stage though it was begun with the floatation of shares by Nepal Bank Limited and Biratnagar Jute Mill Limited (BJM) in 1937 under the company act 1936. and conversion of the SEC into the Nepal Stock Exchange under the government policy.

Although. But after a year. twenty-seven brokers and tenissue manager to provide service of securities. 4. market making for government bonds and other financial services. the activities of buying and selling of shares on the stock are extremely important for the allocation of capital with in economies and it requires on in depth analysis. In Nepal. His Majesty's Government under a program initiated to reform capital markets converted Securities Exchange Center in to Nepal Stock Exchange in 1993. Among all the economical and financial market. Therefore stock market development is partly a natural progression of the development of a country's financial sector as long term economic growth proceeds. NEPSE is the only official stock market where there are three market makers. again downward trend in the stock market started and has been continuing till now. Thus. the growth of stock market is high relative to the growth of the economy. again downward trend in the primary as well as secondary market is observed and this phenomenon has been continuing till end of 2001. the stock market is a pivotal institution in the financial system of a country.1 Nepal Stock Exchange (NEPSE) Securities Exchange Center was established with an objective of facilitating and promoting the growth of capital markets. underwriting.one year only. two securities dealer. Before conversion in to Nepal Stock Exchange (NEPSE) it was the only capital markets institution undertaking the job of the brokering. After a year. 57 . the share of corporate sector in the national economy is still very low due to the negligible size of corporate sector. It was happen due to the internal and external problem face by the country's capital market. managing public issue. Thus. The development of the stock market depends largely on financial intimidation as well as on the availability of a wide array of financial institution. the stock market in Nepal is burning issue and is in its infancy stage also. This has positive and immediate impact on the primary market.

The main objective of NEPSE is to upgrade the infrastructure of the security exchange so that it could handle the increased activity more efficiently.89 million is subscribed by HMG/N. The ownership of different members is given below: Table: 4. operating under security exchange act 1983.50 million and the issued capital is Rs. 1 2 3 4 HMG/N NRB NIDC Other Members (%) 52. 10 issue managers. NIDC and Other Licensed members. as an initiator to reform the capital market. with ownership among His Majesty's Government. After the restoration of democracy in 1990. This has included a focus on the modernization of the trading clearing settlement and surveillance procedures.55 39. market intermediaries. 2 securities dealers and 1 market maker to smooth the daily transaction of buying and selling of securities. market makers etc.1 : Shareholders of NEPSE S.04 0. The Nepal Rastra Bank (NRB) and Nepal Industrial Development Corporation (NIDC) and its licensed members. of this 20. NEPSE commenced its operation on 13th January 1994. the interim government in its short period has initiated banking reformation and has established Citizen Investment Fund (CIF). NEPSE is a non-profit organization. There are 27 industrial securities brokers. such as broker. converted Securities Exchange Center into Nepal Stock Exchange Limited (NEPSE).The basic objective of NEPSE is to impart the free marketability and liquidity to the government and corporate security by facilitating transaction in its trading floor through member.30 million. NRB. His majesty's Government. 2000/01: 7) The number of listed companies was 16 in1986 where as it 58 . The establishment of NIDC capital market limited is also another major step to improve financial system in Nepal.69 Source: SEBON Annual Report 2001/02 The authorized capital of NEPSE is Rs.NO Shareholders Investment .72 7. (SEOBN-Annual Report.

was 115 in 2001 but it is only 96 in 2002. the price of securities is determined by the basic laws of supply and demand. Nepal was established in May 26. SEBO has been concentrating its efforts to improve the legal and statutory frameworks which are the bases for the healthy development of the capital market. The market shows continues rise till 2001 but it is little down in year 2002. But at the end of the fiscal year 2002/03 the total number of listed companies in NEPSE is 108. the Securities Exchange Act. Since its' establishment. As a part of its continuous effort to build a sound system.16 million in 2001 but it is Rs. This amendment paved the way for establishing SEBO as an apex regulatory body as it widened the horizon of SEBO by bringing market intermediaries directly under its jurisdiction and also made it mandatory for the 59 . NEPSE is responsible for the regulatory functions under the supervision of Security Board Nepal (SEBO/N).2 Securities Board Nepal (SEBO/N) Securities Board. The stock exchange provides an organized market place for the investors to pay and sell securities freely. there is active biding and two-way auction trading takes place.63 million in 2002. with it associated problems of stock availability and liquidity in order to develop stock market. The value of listed companies' shares has reached to RS. NEPSE deleted some companies' name from its list because of not performing rules and regulation of capital market. 1983 was amended for the second time on Jan 30. 1997. 1993 under the provision of Securities Exchange Act. 4.2344. 1983(first amendment). Since the buying and purchasing activities are done through bargaining. The stock exchange provides an auction market in which members of the stock exchange participate to ensure continuity of the price and liquidity to investors. In Nepal current market size of tradable security is small. The market for these securities is an almost perfectly competitive one because a large number of sellers and buyers participate.1540. In stock exchange.

Although the second amendment in the act established direct relationship of SEBO with the market intermediaries and the listed companies. SEBO has also drafted a new Security and Exchange Act. In order to improve such a situation. General objectives of SEBO: i) To promote and protect the interest of the investors by regulating the issuance.corporate bodies to report to SEBO annually as well as semi-annually regarding their performance. iii) To render contribution to the development of capital market by making securities transactions fair. sale or exchange of securities. SEBO focusing on the major areas where improvement is necessary. efficient and responsible The main functions of SEBO are as follows: i) ii) iii) To advise HMG on the issues related to development of To approve stock exchanges for the operation and oversee To register and regulate market intermediaries involved in capital market and the protection of the investors' interest. iv) To regulate public issues of securities including the mutual and trust funds. v) To monitor and supervise the securities transactions. sale and distribution of securities and purchase. healthy. 60 . supremacy in its jurisdiction is yet to be established and clearly recognized. them for healthy trading of securities. the primary issues as well as in the secondary trading of securities. has launched a four-year Strategic Plan (1998-2002) with major thrust in four major policy development areas. look after and monitor the activities of the stock exchange and of corporate bodies carrying on securities business. which has sought to improve inconsistencies observed in the present act and establish SEBO as an apex regulator of the securities market. ii) To supervise.

At the end of the fiscal year 2001/2002 SEBO was manned altogether by 25 staffs including executives. Governing Board. vii) To conduct conferences. composed of seven members including a chairman. As a developing regulator of the capital market. 2000/01: 2) PRESENTATION AND ANALYSIS This chapter deals with data presentation. (SEOBN-Annual Report. seminars. By using financial and statistical tools. it has created revolving fund from which it generates income that helps to cover part of its expenses. The results of the copulation have also been CHAPTER – 5 61 . The Chairman is appointed by His Majesty’s Government of Nepal (HMG/N) for the tenure of four years. and participate in such programs conducted at regional or international level and join the forum and exchange with outside regulators. Income from registration of corporate securities and registration as well as renewal of market intermediaries are its' other financial sources. Ministry of Law. the data have been analyzed. Federation of Nepalese Chamber of Commerce and Industry and Nepal Chartered Accountants' Association. Members of the Board include representatives one each from Ministry of Finance. analysis and interpretation following the research methodology presented in the third chapter. It is the Government's prerogative to re-appoint the chairman. and Funding of SEBO: SEBO is governed by a Board. if necessary. officers and supervisory and support staffs.vi) To conduct researches and studies along the area of capital market. workshops. SEBO is basically relying on governments' financial assistance. In this course of analysis. data gathered from various sources have been inserted in the tabular form. Nepal Rastra Bank (The Central Bank). Staffing. Ministry of Industry. In order to be a self-dependent institution.

NWPS and with the previous years dividend or currently distributed dividend of the selected listed banking. 62 . Basically the following analyses have been carried out: • • • • • Co-relation coefficient analysis Multiple regression analysis Calculation of required rate of return Analysis of the primary data Paired T-test analysis 5. Similarly the second is to derive multiple regression equation of EPS. The following table summarizes the correlation coefficient of MPS with EPS.1. NWPS and observed MPS and currently distributed dividend and MPS. It showed the positive relation. the relationship of MPS with previous year’s dividend (this year’s distributed dividend) is also calculated. DPS. DPS. For this research purpose the five year (from 1997/98 to 2001/02) related data are first gathered and tabulated and then correlation coefficient of MPS with other financial indicators like EPS. Similarly.1 Relationship of MPS with Various Financial Indicators: The relationship of MPS with various financial indicators like EPS. The samples of computation of each model have been included in annexes. as the previous year’s dividend is distributed in the subsequent following year. DPS and observed MPS. NWPS and currently distributed dividend of previous year is evaluated through two methods. DPS and NWPS on MPS. 5.summarized in appropriate tables.1 Co-relation Coefficient Analysis: Co-relation coefficient is the best measures to evaluate and examine the relationship between two variables. DPS and NWPS is calculated for the selected banking and financial companies. negative relation and no relation between two variables. financial and insurance companies. The first one is calculation of correlationcoefficient between EPS and observed MPS.

33 0.64 and -0.76 0.26 0. the result is different.06 0.95 0. This means that market price of the stock of NABIL bank during the study period was positively influenced by EPS. Although DPS should have a strong influence in the market price. the correlation coefficients of MPS with EPS.85 0. Similarly. Similarly.23 Bangladesh Bank 5 Everest 0. 0.64 -0.62 0.46 Finance Finance 9 Universal 0.83 0.97 0. Sector Name of With EPS With DPS With With No the NWPS Last Company Year’s DPS 1 NABIL 0.34 0.85 0.55 -0.71 0.06 0.90 0.65 0.1 Calculation of coefficient of co-relation between MPS and EPS. the result shows that distribution of dividend (previous year’s dividend in current year) of NABIL bank has negative impact its 63 . MPS and DPS.85 0.Table: 5. NWPS and previous year’s dividend of NABIL bank are 0.63. Nepal Arab Bank Ltd (NABIL) As per the above table.75 0.04 -0.06. DPS.25 0.78 0.57 -0.63 0.61 Finance 8 Peoples 0.90 Insurance Insurance 12 Everest 0.48 2 Standard 0.36 Finance 11 Himalayan 0.986 0.74 0. NWPS and currently distributed DPS of previous year. Since the correlation coefficient of MPS with DPS is only 0.06. the relationship is negative in case of previous year’s dividend. DPS has no significant relation in the movement of stock price of NABIL bank.29 Chartered 3 Himalayan 0.48 respectively.61 No DPS 0. MPS and NWPS and MPS and last year’s DPS S. The reasons behind such irrelevant result could be sampling error or the collection of only five years data for the study.85 Insurance The above table shows the correlation coefficient between MPS and various financial indicators as EPS.21 -0. DPS.34 0. DPS and NWPS.60 Bank Banking 4 Nepal 0. 0.60 Bank 7 Annapurna -0.

If more years’ data were collected and then correlation was calculated. 0. NWPS and last year’s dividend are 0. Similarly. DPS.55 and -0. NWPS and last year’s dividend. DPS of HBL. (SCB): In case of Standard Charted Bank.29 respectively. It shows that the stock price of NB bank has strong positive correlation with its EPS. This result indicates that the relation of MPS with EPS is nearly zero or there is no relation between them. DPS. 0. theoretically EPS. DPS. NWPS and last year’s dividend. Similarly.76.stock price. Although. Standard Charted Bank Ltd.21. The calculation shows that NABIL bank’s stock price is more influenced by NWPS then other financial indicators. Nepal Bangladesh Bank Ltd. DPS and NWPS. -0. DPS and NWPS also should have same kind of relation with MPS.97 and 0. the relationship with MPS is negative. 0. the result shows the negative relation because of the short study period of 5 years. then the result may prove the theory. -0. DPS and NWPS. NWPS and last year’s dividend is 0.33. Himalayan Bank Limited (HBL): The market price of the stock of HBL has positive relation with its all financial indicators like EPS.65 and 0. the correlation coefficients of MPS on EPS. DPS and NWPS. among other financial indicators.60 respectively. the correlation coefficient of MPS of HBL with its EPS. This theoretical concept has been proved by the calculation of correlation coefficient of MPS of NB bank with its EPS. (NBL): If the EPS of a company is high then the demand for such company’s stock is increased and thus the stock price would move forward in the same line with EPS.04.85. As per the calculation. its correlation 64 . The result shows that the MPS of HBL is more affected by EPS then other financial indicators.986 is the value of correlation coefficient of MPS of NB bank with its EPS. has least relationship with MPS. Similarly in case of other financial indicators like DPS. While considering with the last year’s dividend. dividend declaration and NWPS should have positive impact in MPS. 0.

26. DPS.23 which shows that last year’s dividend has least impact in the stock price of NBL during the study period.34 and 0. But the correlation coefficient of MPS with EPS and NWPS 65 . DPS and NWPS has no significant role or least role in the change of MPS of Annapurna Finance Company. NWPS and last year’s dividend is 0. DPS. Everest Bank Ltd. Peoples Finance Limited (PFL): Since People Finance has not declared any dividend during the five years of the study period. the correlation of MPS of Everest Bank with its EPS.78. NWPS and last year’s dividend is positive.61 respectively.71.: As HBL and NB bank. DPS. only four years data was studied and analyzed. The calculated result shows that the correlation coefficient of MPS of Everest Bank with its EPS. So. NWPS of Everest Bank has least influence in the movement of stock price then other financial indicators. 0.60 respectively. Similarly. NWPS and last year’s dividend show positive relation with MPS of the company whereas EPS shows negative relationship.25. NWPS and last year’s dividend are -0. it is not possible to compute co-relation coefficient of DPS with MPS. Although EPS. This irrelevant result occurred due to the short study period. last year’s dividend has also significant positive relation with MPS of Everest Bank Ltd.coefficient with MPS is 0. DPS. 0. Among the four financial indicators. Annapurna Finance Limited (AFL): Due to the lack of data of 2001/02 of Annapurna Finance Co. The result states that the correlation coefficient of MPS with EPS. the result shows that the change in EPS. 0. DPS and NWPS should have strong relationship with MPS. EPS and DPS has strong positive relation with MPS of Everest Bank Although NWPS also should have strong relationship with MPS as EPS and DPS. during the four years study period.06 and 0. 0.

the correlation coefficient of MPS of Peoples Finance with its EPS.61. DPS. Although only four years’ data were taken for the calculation of correlation coefficient of Everest Insurance. DPS. NWPS and last year’s dividend are 0. 0. 0. Himalayan Insurance: The stock price of Himalayan Insurance Company moves in the same direction as the EPS. the MPS has also increased and when EPS decreased the MPS has also decreased.90.75 and 0. DPS.83 and 0. NWPS and last year’s dividend moves because the correlation coefficient between them is 0. DPS.34.90 respectively. 0. Numerically. Everest Insurance: As Himalayan Insurance Company. The calculated result shows that the correlation coefficient of MPS of Everest Insurance with its EPS. the correlation of MPS of Everest Insurance with its EPS.57 and -0. 0. DPS.36 respectively.both are positive with last year’s dividend is negative.85 respectively.85. This is because when the EPS of the company has increased.85. all the four financial indicators. the stock holder of Peoples Finance get dividend and for the remaining years the dividend was zero. EPS. Moreover the EPS of the company has the most significant relationship with MPS. DPS. Universal Finance Limited (UFL): The market price of the stock of Universal Finance has positive relation with its all financial indicators like EPS.46 respectively. The result shows that the MPS of Universal Finance is more affected by NWPS then other financial indicators and EPS has least relationship with MPS. As per the calculation.62. the correlation coefficient of MPS of Universal Finance with its EPS. NWPS and last year’s dividend. The correlation of last year’s dividend with MPS is negative because only in the first year of the study period. NWPS and last year’s dividend is positive. NWPS and last year’s dividend is 0. NWPS and last year’s dividend are 0.95. This indicates that all the financial indicators have strong positive relationship with MPS of Himalayan Insurance Company. NWPS and last 66 . 0.74 and 0. 0. 0.

and NWPS are omitted from the model. Similarly. Such result occurs because all the four financial indicators as well as MPS of Everest Insurance Company are in increasing trend during the four years study period. DPS. Descripti on Coefficient Values Standard Error Significant -t a1 3074.619 as it explain by the standard error of b1. DPS and NWPS on MPS of NABIL bank for the five years study period.36 2 0. DPS and NWPS are kept constant.47 1 S. The regression constant a1 of NABIL is 3074.920 r2 0. The regression coefficient b1 represents that one rupee increase in EPS leads to an average increase in MPS by 51. In other words.519 9 Significa nt f 0.919 b1 51.EPS+b2. However the value of b1 may vary by rupees 213.E 683.NWPS Table: 5.417 0.20 if the other two variables.E. 5.783 23933. multiple regression analysis helps to establish the functional relationship between more than two variables and thereby provides a mechanism for estimation.850 b2 -19.515 0. DPS. multiple regression analysis is applied here in order to analyze the combined effect of EPS.783 which imply that MPS does not go below that level even if EPS.200 213. and NWPS on MPS of the sampled companies.year’s dividend have strong positive relation with MPS of Everest Insurance Company.992 61. the regression coefficient b2 measures the average 67 .61 9 0.616 147.DPS + b3.836 The above table summarized results of multiple regression analysis produced by using SPSS software for determining the combined effect of EPS.800 b3 -18. However.2 Multiple Regression Equation: In multiple regression analysis two or more independent variables are used to estimate the values of a dependent variable.1.2 Regression Coefficient for NABIL Bank. Multiple Regression Equation for NABIL Bank: MPS=a+b1.

DPS and NWPS and 52. and NWPS are zero. holding the two other variables constant. Multiple Regression Equation for Standard Chartered Bank: MPS=a+b1.280 which implies that MPS does not go below that level even if the values of EPS.E. is -614.749 b1 27. DPS and NWPS are kept constant.030 1 Significa nt f 0.836 which is greater than 0. Descripti on Coefficient Values Standard Error Significant –t a1 -614. the regression model is statistically insignificant at 5% level of significance as the value of significant f is 0. The value of b2 being -19.19.328 As per the above table of Multiple Regression Analysis.273 as it explained by the standard error of b1.90% variation in MPS is due to the other irrelevant factors.05.10% variation in MPS is accounted for by the variation in EPS. The estimation of MPS might be inaccurate by Rs.519 as the standard error of estimate. holding the two other variables constant.273 0.3 Regression Coefficient for Standard Chartered Bank.992 indicates that one rupee increase in DPS leads to a decrease in MPS by Rs.93 2 S.964 if the other two variables. the regression coefficient b2 measures the average effect of DPS on MPS. The value of b3 which is equal to 49.964 14.19.135 0. However the value of b1 may vary by rupees14.NWPS Table: 5.280 1479.992 indicates that one rupee increase in DPS leads to a decrease in MPS by Rs. The value of b2 being -19. a1.270 b3 -18. The regression coefficient b1 represents that one rupee increase in EPS leads to an average increase in MPS by 27.040 indicates that an 68 .992. Like wise the coefficient b3 measures the average effect of NWPS on MPS.683.616.04 0 22.EPS+b2.effect of DPS on MPS. Similarly.431 0.992.DPS + b3. The coefficient of determination r 2 explains that 47. However negative MPS is ridiculous in practice. Like wise the coefficient b3 measures the average effect of NWPS on MPS. The value of b3 which is equal to -18.300 b2 49. the regression constant SCB.15 6 0.176 r2 0. DPS.616 indicates that an average increase in NWPS by one rupee leads to decrease in MPS by 18.094 5.E 285. produced by SPSS software. Similarly.

DPS + b3. The coefficient of determination r2 explains that 93.018 if the other two variables.E. whereas 6. Like wise the coefficient b3 measures the average effect of NWPS on MPS.031. Similarly. DPS.071 0. The coefficient of determination r2 explains that 84.098 0.80% variation in MPS is due to the other extraneous factors.EPS+b2. However the value of b1 may vary by rupees16. holding the two other variables. EPS and NWPS are left constant.7.average increase in NWPS by one rupee leads to increase in MPS by 49.20% variation in MPS is caused by the variation in EPS.39 4 0. Description Coefficient Values Standard Error Significant –t a1 -231.499 r2 0.05.241 6 Significa nt f 0.071 as it explained by the standard error of b1.492 As shown in the above table.018 16.67 1878.4 Regression Coefficient for Himalayan Bank. Multiple Regression Equation for Himalayan Bank ltd: MPS=a+b1. Similarly.021 11.031 indicates that an average increase in NWPS by one rupee leads to increase in MPS by 11.67 which implies that MPS does not go below that level even if the values of EPS. However negative MPS is ridiculous in practice.032 6.040. DPS and NWPS are kept constant.84 2 S. the multiple relationship as explained by this model is statistically insignificant at 5% level because significant value of F is 0.E 312.004 0.591 b2 7.80% variation 69 . The standard error of estimate of that model reveals the fact that the estimation of MPS might vary by Rs.7.455 b3 11.0301.NWPS Table: 5. DPS and NWPS respectively. DPS and NWPS respectively. whereas 15.285.032 indicates that one rupee increase in DPS leads to an increase in MPS by Rs. The value of b2 Rs. The value of b 3 which is equal to 11. the regression coefficient b2 measures the average effect of DPS on MPS.328 which is greater than 0.20% variation in MPS is caused by the variation in EPS. The regression coefficient b1 represents that one rupee increase in EPS leads to an average increase in MPS by 12. and NWPS are zero. the regression constant a1 of HBL is -231.434 b1 12.032.

519 1141.509 if the other two variables.05.EPS+b2.851 b3 6.5 Regression Coefficient for Nepal Bangladesh Bank.2416 and as the significant F value is 0.120.70% variation in MPS is accounted for by the variation in EPS.120 6.737 b1 -2.957. the relationship established by this model is insignificant at 5% level.E 152. 2. The coefficient of determination r2 explains that 97. The regression constant a1 of NB Bank is -500.97 7 S. Descripti on Coefficient Values Standard Error Significant –t a1 -500. and NWPS are equal to zero. Similarly. DPS and NWPS and 2. by leaving the two other variables as constant.154 0. The standard error of estimate of that model reveals that the estimation of MPS might vary by Rs.193 The above table shows the summarized results of multiple regression analysis produced by using SPSS software for determining the combined effect of EPS.120 indicates that an average increase in NWPS by one rupee leads to increase in MPS by 6. The estimation of MPS might be inaccurate by Rs. DPS.123 1 Significa nt f 0.2. The regression coefficient b1 represents that one rupee increase in EPS leads to an average decrease in MPS by -2.957 12.509 5.30% variation in MPS is due to the other irrelevant factors.519 which implies that MPS does not go below that level even if EPS.49 which is more than 0.in MPS is due to the other extraneous factors.380 0.312. However the value of b1 may vary by rupees 5. The value of b2.508 0. DPS and NWPS are kept constant. the regression coefficient b2 measures the average effect of DPS on MPS.712 b2 2.NWPS Table: 5.152.DPS + b3.E.1321 as the standard 70 . Like wise the coefficient b3 measures the average effect of NWPS on MPS. The value of b3 which is equal to 6.520 r2 0.154 as it explain by the standard error of b1. DPS and NWPS on MPS of NB Bank Ltd. for the five years study period.957 indicates that one rupee increase in DPS leads to an increase in MPS by Rs. Multiple Regression Equation for Nepal Bangladesh Bank Ltd: MPS=a+b1. However negative MPS is ridiculous in practice.40 6 0.

469 b1 54.DPS + b3. EPS and NWPS are kept constant.263 if the other two variables.416 b3 -4. The regression coefficient b1 represents that one rupee increase in EPS leads to an average increase in MPS by 54. The standard error of estimate of that model reveals that fact that the estimation of MPS might vary by Rs. However the value of b1 may vary by rupees 22.E 153.390 r2 0. the relationship established by this model for Everest Bank’s MPS is insignificant at 5% level. DPS. DPS and NWPS respectively.00% variation in MPS is due to the other extraneous factors.684 341. the regression coefficient b2 represents that one rupee increase in DPS leads to an average increase in MPS by 5. As the significant F value is 0.5893.375 0.94 0 S.246 b2 5. -4.415.309 The above table shows the outcomes of multiple regression analysis produced by using SPSS software for determining the combined effect of EPS. Multiple Regression Equation for Everest Bank Ltd: MPS=a+b1.153.116 as it explained by the standard error of b1.05.05.415 3.error of estimate.19 which is greater than 0.105 0. for the five years study period.116 0. whereas 6. DPS and NWPS on MPS of Everest Bank Ltd.263 4.589 3 Significa nt f 0. Descripti on Coefficient Values Standard Error Significant –t a1 -376.6 Regression Coefficient for Everest Bank. Like wise the coefficient b 3 measures the average effect of NWPS on MPS.029 0. The value of b3.684 which implies that MPS does not go below that level even if the values of EPS. 71 . The regression constant a1 of EBL is -376.415 indicates that an average increase in NWPS by one rupee leads to decrease in MPS by 4. The coefficient of determination r2 explains that 94. and NWPS are zero.336 if the other two variables.309 which is more than 0.NWPS Table: 5.336 22.00% variation in MPS is caused by the variation in EPS. However negative MPS is ridiculous in practice. DPS and NWPS are kept constant. Similarly. the multiple relationship as explained by this model is statistically insignificant at 5% level because significant value of F is 0.E. Similarly.EPS+b2.

381.204 for b1 represents that one rupee increase in EPS leads to an average decrease in MPS by Rs.E 386.DPS + b3.917 which implies that MPS does not go below that level even if EPS. The value of b3 which is equal to 0. The value of b2.585 0. the regression coefficient b2 measures the average effect of DPS on MPS. 1. Like wise the coefficient b3 measures the average effect of NWPS on MPS.909 b3 0. 25.204 25.204 if the other two variables.719 0.917 2121.982 The above table shows the summarized results of multiple regression analysis for determining the combined effect of EPS.930 b1 -0.184 12.12 S. for the five years study period.EPS+b2.991 r2 0. 12.96 as it explains by the standard error of b1.7 Regression Coefficient for Annapurna Finance.457 4 Significa nt f 0.Multiple Regression Equation for Annapurna Finance Ltd: MPS=a+b1.00% variation in MPS is accounted for by the variation in EPS. 0.96 0.NWPS Table: 5. DPS and NWPS 72 . The regression constant a1 of Annapurna Finance is 232.381 9.948 by the effect of DPS and NWPS separately as the standard error of b2 and b3 shows it. However the value of MPS may vary by Rs. The coefficient of determination r2 explains that 12.948 0. by leaving the two other variables as constant. DPS.184 indicates that an average increase in NWPS by one rupee leads to increase in MPS by Rs. 0. and NWPS are equal to zero. 1.E. 9. Similarly. Descripti on Coefficient Values Standard Error Significant –t a1 232.184. DPS and NWPS are kept constant. Generally EPS should have positive influence in MPS but the result here derived shows the negative because of the short study period.381 indicates that one rupee increase in DPS leads to an increase in MPS by Rs.585 and Rs. However the value of MPS caused by EPS may vary by rupees Rs.995 b2 1. The regression coefficient -0. DPS and NWPS on MPS of Annapurna Finance Company Ltd.

Whereas it may vary by Rs. the multiple relationship as explained by this model is statistically insignificant at 5% level because significant value of F is 0.E 87. The value of b3 which is equal to 0.538 The above table shows the outcomes of multiple regression analysis produced by using SPSS software for determining the combined effect of EPS.EPS+b2. The regression coefficient b1 represents that one rupee increase in EPS leads to an average increase in MPS by 0. Similarly.NWPS Table: 5. the regression coefficient b2 measures the average effect of DPS on MPS.977 0.897 0.977 due to the standard error explained in b3.8 Regression Coefficient for Peoples Finance.548 b2 b3 0.4083 Significa nt f 0.98 which is greater than 0. 0. Similarly. Due to the non declaration of cash dividend during our study period by the co.DPS + b3. Descripti on Coefficient Values Standard Error Significant –t a1 120. The regression constant a1 of PFCL is 120. Like wise the coefficient b3 measures the average effect of NWPS on MPS. and NWPS are zero. DPS and NWPS on MPS of Peoples Finance Company Ltd. the effect of DPS on MPS could not explained and left blank as above. The coefficient of determination r2 explains that 46. DPS and NWPS are kept constant.575.340 b1 0.575 0.182 which implies that MPS does not go below that level even if the values of EPS.897 as due to the standard error of b1.643 0.643 if the other two variables.714 0.and 88% variation in MPS is due to the other irrelevant factors. DPS.05.575 indicates that an average increase in NWPS by one rupee leads to increase in MPS by 0.616 r2 0.46 2 S. However the value of b1 may vary by rupees0.20% 73 . for the five years study period.E.182 96. Multiple Regression Equation for Peoples Finance Ltd: MPS=a+b1.

804. The coefficient of determination r2 explains that 98. DPS and NWPS respectively.236 indicates that an average increase in NWPS by one rupee leads to increase in MPS by 3. The value of b3.7.NWPS Table: 5.476 0. EPS and NWPS are left constant.236. The relationship explained by this model for Peoples Finance is insignificant at level of 5% because the significant F value is 0. whereas 1.236 0. DPS and NWPS are kept constant.DPS + b3.804 indicates that one rupee increase in DPS leads to an increase in MPS by Rs. and NWPS are zero.103 b2 7. 3.552 0.10% variation in MPS is due to the other 74 . Ltd. The regression constant MPS (a1) of UFCL is 139.9 Regression Coefficient for Universal Finance.E 15.0772 Significa nt f 0. the coefficient b3 measures the average effect of NWPS on MPS.1. Like wise.05.80% variation in MPS is due to the other extraneous factors.98 9 S. whereas 53.119 b3 3. Multiple Regression Equation for Universal Finance Ltd: MPS=a+b1.E.87.123 as it explained by the standard error of b1. holding the two other variables. DPS. The regression coefficient b1 represents that one rupee increase in EPS leads to an average decrease in MPS by 19.90% variation in MPS is caused by the variation in EPS.828 which implies that MPS does not go below that level even if the values of EPS.134 As above table explains the multiple regression analysis to determine the combine effect of EPS.196 b1 -19.828 44. The standard error of estimate of that model reveals that fact that the estimation of MPS might vary by Rs. the regression coefficient b2 measures the average effect of DPS on MPS.108 r2 0.538 which is more than 0.123 0. Rs.variation in MPS is caused by the variation in EPS. Description Coefficient Values Standard Error Significant -t a1 139.EPS+b2. DPS and NWPS on MPS computed by SPSS software of Universal Finance Co. However the value of b1 may vary by rupees 3. DPS and NWPS respectively.476 due to the standard error. during the five years study period.4083. Similarly. The value of b2.387 0.804 1.197 if the other two variables.7. However the value of DPS may vary by Rs.197 3.

987 b1 8. DPS and NWPS are kept constant.extraneous factors. Ltd.213. As the significant F for the Universal Finance is 0. for the five years study period.0772. holding the two other variables constant.399. DPS and NWPS and 6.129 4.330 The above table depicts the summarized results of multiple regression analysis produced by using SPSS software for determining the combined effect of EPS.399 indicates that an average increase in NWPS by one rupee leads to decrease in MPS by 0.759 0.480 due to the standard error of b2. The value of b2 being -3. Like wise the coefficient b3 measures the average effect of NWPS on MPS. Description Coefficient Values Standard Error Significant –t a1 7. However it may vary by Rs.E. The regression constant a1 of HGICL is 7.3.854 0. the relationship established by this model is significant only on the level of 13.399 3.343 b2 -3.NWPS Table: 5.6175 Significa nt f 0.The coefficient of determination r2 explains that 93.90% variation in MPS is due to the other irrelevant factors. The estimation of MPS might be inaccurate by 75 . Multiple Regression Equation for Himalayan General Insurance: MPS=a+b1.15.4% and it is insignificant at the level of 5%.10 Regression Coefficient for Himalayan General Insurance.134.735 which imply that MPS does not go below that level even if the value of EPS. The value of b3 which is equal to 0. The standard error of estimate of that model reveals that the estimation of MPS might vary by Rs.DPS + b3.EPS+b2. the regression coefficient b2 measures the average effect of DPS on MPS.213 indicates that one rupee increase in DPS leads to a decrease in MPS by Rs. The regression coefficient b1 represents that one rupee increase in EPS leads to an average increase in MPS by 8.480 0. However the value of b1 may vary by rupees 4.10% variation in MPS is caused by the variation in EPS.798 0.933 r2 0.E 46.735 389.129 if the other two variables. DPS and NWPS on MPS of Himalayan General Insurance Co. DPS.854 as it explain by the standard error of b1. and NWPS are zero.662 b3 0.93 1 S. Similarly.5.213 5.

19 b3 7.E 0. DPS and NWPS respectively. DPS and NWPS on MPS of Everest Insurance Company for the five years study period.240 0. The regression coefficient b1 represents that one rupee increase in EPS leads to an average increase in MPS by Rs.119 0.115 which implies that MPS does not go below that level even if the values of EPS.942 0.8% variation in MPS is caused by the variation in EPS.05.161 0. The coefficient of determination r2 explains that 92.33 for Himalayan General Insurance which is more than 0. As the significant F value is 0. 8. whereas 7.05. Descripti on Coefficient Values Standard Error Significant –t a1 554.DPS + b3.E.16 b1 16. the regression coefficient b2 represents that one rupee increase in DPS leads to an average increase in MPS by Rs.256 0.18 r2 0.EPS+b2. Similarly. The value of b3. Multiple Regression Equation for Banking Sector: MPS=a+b1.240 if the other two variables. Like wise the coefficient b3 measures the average effect of NWPS on MPS.Rs. Multiple Regression Equation for Everest Insurance: MPS=a+b1. and NWPS are zero.2% variation in MPS is due to the other extraneous factors. The regression constant a1 of Everest Insurance is 554. However the value of b1 may vary by rupees 0.11 Regression Coefficient for Everest Insurance.13 b2 8.256 if the other two variables.NWPS 76 . the relationship established by this model for Everest Insurance Co’s MPS is insignificant at 5% level.942 as it explained by the standard error of b1. 16.9327 Significa nt f 0.452 0.92 8 S.431 0. DPS and NWPS are kept constant. 7.161 indicates that an average increase in NWPS by one rupee leads to increase in MPS by Rs. EPS and NWPS are kept constant.EPS+b2.NWPS Table: 5. DPS.40 which is more than 0.115 133.DPS + b3. the relationship established by this model is insignificant at 5% level. 7.46.40 The above table shows the combined effect of EPS.161.6175 as the standard error of estimate. As the significant F value is 0.

1% variation in MPS is caused by other external factors.Table: 5. 4. the irrelevant result occurred due to the short study period.9% variation in MPS is due to the variation in EPS. 652. The coefficient of determination (r2) explains that 61.825 and 2. Similarly the regression coefficient b2 and b3 is 4. The value of standard error of b 2 and b3 is 3. The regression constant a with the value of 652.519 in average if DPS is increased by Rs. However the standard error for b1 shows that the MPS might vary by Rs.114 r2 0.035 indicates that MPS of banking sector does not go below Rs. But the standard error of estimate of the model reveals that the estimation of MPS may vary by Rs.008 b2 4. This indicates that the MPS of banking sector will increase by Rs.05. The regression model is statistically significant at 5% level of significance as Multiple Regression Equation for Finance Sector: MPS=a+b1.035 298. 1 and other two variables are kept constant for each case.040 b1 14. Although increase in NWPS should not decrease the value of MPS.275 0.251 b3 -3. 14.DPS + b3.825 0.746 2. 3.E 355 Significa nt f 0 The above table shows the outcomes of multiple regression analysis for the banking sector.746 respectively.519 and -3.12 Regression Coefficient for Banking Sector. which indicate that the value of MPS by the impact of DPS and NWPS could vary by Rs.519 3. 3.NWPS 77 .275 respectively.275 respectively.035 in average even if EPS.EPS+b2. 2.746 if NWPS is increased by Rs. DPS and NWPS have value of zero. 1 and the MPS will decrease by Rs.357 increase in MPS of the whole banking sector if other two variables are kept constant. the significant F value is 0 which is less than 0.895 0.357 4.357 which imply that one rupee change in EPS leads to the average of about Rs.61 9 S.895. The regression coefficient b1 is 14.492 0.825 and Rs. 355.E. Descripti on Coefficient Values Standard Error Significant –t a1 652. 4. DPS and NWPS whereas 38.

However the value of DPS may vary by Rs. Similarly. 0. This occurs because of the short study period.633 76.1% variation in MPS of finance sector is caused by the variation in EPS. The value of b3. The coefficient of determination r2 explains that 40.364 1.13 Regression Coefficient for Finance Sector.425 indicates that one rupee increase in DPS leads to an increase in MPS by Rs. the regression coefficient b2 measures the average effect of DPS on MPS. 0.0. 0.790 b3 0. holding the two other variables.277 r2 0. Description Coefficient Values Standard Error Significant –t A 75. whereas 59.765 0. 78 .547 Significa nt f 0. DPS and NWPS in MPS should be maximum then other external factors.147 which indicates that the relationship established by this model is significant only on the level of 14.879 0. The regression coefficient b1 represents that one rupee increase in EPS leads to an average increase in MPS by Rs.252 as it explained by the standard error of b1.633 which imply that MPS does not go below Rs.40 1 S. this derived result seems irrelevant. Since the impact of EPS. 75.554 due to the standard error. The regression constant of MPS (a) of finance sector is 75. EPS and NWPS are left constant.492 0. Like wise. DPS and NWPS on MPS computed by SPSS software of the selected companies of finance sectors so that they could represent whole finance sector. During the five years study period.346 b1 0.Table: 5.777 b2 0. the significant F for the financial sector is 0. DPS. The value of b2. DPS and NWPS are kept constant.7% and it is insignificant at the level of 5%. DPS and NWPS respectively. 1.879. However the value of b1 may vary by rupees 1.147 The above table explains the multiple regression analysis to determine the combine effect of EPS.E.252 0.425.9% variation in MPS is due to the other extraneous factors.E 131.425 1.633 even if the values of EPS. and NWPS are zero.879 indicates that an average increase in NWPS by one rupee leads to increase in MPS of finance sector by Rs.554 0. 0. the coefficient b3 measures the average effect of NWPS on MPS. Similarly.364 if the other two variables.

397 if the other two variables.275 Significa nt f 0. However negative MPS is ridiculous in practice and such impractical result occurs due to the sampling error. However the value of b1 may vary by rupees 7. and NWPS are zero. EPS and NWPS are left constant.453 0.Multiple Regression Equation for Insurance Sector: MPS=a+b1.80 6 S. The coefficient of determination r2 explains that 80. 5. Like wise the coefficient b3 measures the average effect of NWPS on MPS. DPS and NWPS are kept constant.448 0.95 which implies that MPS does not go below Rs. The standard error of estimate of that model reveals that the estimation of MPS might vary by Rs.40% variation in MPS is due to the other extraneous factors.305. the regression coefficient b2 measures the average effect of DPS on MPS.453 as it explained by the standard error of b1.031 which is less than 0.027 0. the relationship established by this model is significant at 5% level. The value of b3 which is equal to 0.923 b1 4.E.95 for the insurance sector in average even if the values of EPS.EPS+b2. Similarly.52 3. the regression constant a 1 of insurance sector is -30.52.613 and as the significant F value is 0.52 indicates that an average increase in NWPS by one rupee leads to increase in MPS by Rs.60% variation in MPS of the financial sector is caused by the variation in EPS.951 305. The regression coefficient b1 represents that one rupee increase in EPS leads to an average increase in MPS of the finance sector in average by Rs.591 indicates that one rupee increase in DPS leads to an increase in MPS of finance company by Rs.613 0. DPS and NWPS respectively.580 b3 0. 5. 79 .05. 4.397 7.87 r2 0.591. -30.14 Regression Coefficient for Insurance Sector. whereas 19.591 9. holding the two other variables. Descripti on Coefficient Values Standard Error Significant –t a1 -30.581 b2 5.DPS + b3. 0.E 72. The value of b2.031 As shown in the above table. DPS.NWPS Table: 5.

The regression model is statistically significant at 5% level of significance as the significant F value is 0 which is less than 0.15. DPS and NWPS whereas 39.NWPS Table: 5. 162. 80 .472 respectively.755 0.527 162. 5.609 and 1.417 respectively.05. which indicate that the value of MPS determined by the above model due to the cause of DPS and NWPS could vary by Rs.565 in average if DPS is increased by Rs.565 and 0.60 3 S.039 b3 0. 2. finance and insurance sector does not go below Rs.7% variation in MPS is caused by other external factors. Regression Coefficient for Banking.050 b2 5.472 respectively. But the standard error of estimate of the model reveals that the estimation of MPS may vary by Rs.609 and Rs. Similarly the regression coefficient b2 and b3 is 5. insurance and finance sector. 2.417 1.527 indicates that MPS of whole banking. 1 and other two variables are kept constant for each case.3% variation in MPS of the whole sector is due to the variation in EPS.DPS + b3.Multiple Regression Equation for Banking.6 Significa nt f 0 The above table shows the outcomes of multiple regression analysis for the whole banking.417 if NWPS is increased by Rs. Descripti on Coefficient Values Standard Error Significant –t a1 101. The regression constant a with the value of 101. 101.E.565 2. 1. 1 and the MPS will increase by Rs.558 increase in MPS of the whole banking and insurance sector if other two variables are kept constant. Finance and Insurance Sector: MPS=a+b1.EPS+b2.558 2. DPS and NWPS have value of zero.E 364. 0.558 which imply that one rupee change in EPS leads to the average of about Rs. The coefficient of determination (r2) explains that 60.755. Finance and Insurance Sector.609 0. The regression coefficient b1 is 5. The value of standard error of b2 and b3 is 2.472 0.839 0.536 b1 5. However the standard error for b1 shows that the MPS might vary by Rs. This indicates that the MPS of banking sector will increase by Rs.527 in average even if EPS.839.778 r2 0. 5.

86% 61.97% 31.14% Status of the stock of the company Undervalue d Undervalue d Undervalue d Undervalue d Undervalue d Undervalue d Undervalue d Undervalue d Overvalued Undervalue d Sector Name of the Company βj 1 2 3 4 5 6 Banking NABIL Standard Chartered Himalayan Bank Nepal Bangladesh Bank Everest Bank ) 1.89% 17.39% 16. If required rate of return is more than actual rate of return then the stock is called overpriced and if the actual rate of return is more than required rate of return of such stock then that stock is called under priced.63% 30.3 5 2.6 2 1.8 6 0. Similarly. Status of the Market Price of the Shares of the Sample Companies S. The detailed calculation of required rate of return and Actual rate of return is presented in Annex.64% 20.78% 48.33% 20.6% 11.56% Actual Rate of Return (R) 30.24% 19.6 0 2.9 2 2.6 5 + ( Rm − R f ) β j Annapurna Finance Peoples 7 Finance Finance 8 Universal Finance 9 Himalayan Insurance Insuranc e 10 Everest Insurance Required Rate of Return(R)= R f if R>Rj then the stock is under valued if Rj>R then the stock is over valued 81 .82% 29.36% 63. Table: 5.16. No Bet a ( Required Rate of Return (Rj) 14. if the required rate of return equals actual rate of return then that stock is called equilibrium priced.81% 44.3 0 2.2 Pricing Status of Stock: The status of the pricing of the stocks of particular company is evaluated by comparing the required rate of return and actual rate of return.4 9 2.45% 43.12% 10.5.8 3 1.29% 24.06% 23.18% 27.2 8 0.

78% during the five years study period.89% and the actual rate of return is Rs. It shows that the required rate of return is less than the actual rate of return thus it can be concluded that the stock of such company is also undervalued. Universal Finance & Capital Markets Ltd.36%.19.63% and 48. is 16. Since the actual rate of return is higher than the required rate of return.39% and the actual rate of return is 63. As well as the required rate of return and actual rate of return of another finance co.6% where as actual rate of return is 30. is also undervalued. In the same ground the required rate of return of Everest Bank Ltd.e.29 % and 27. i. The actual rate of return is higher than the required rate of return. It shows that the actual rate of return is also higher than the required rate of return during the study period.81%.24% during the study period. Similarly the required rate of return of Annapurna Finance is 20.33% and actual rate of return is 61. Since the stock of Everest Bank Ltd. Hence the actual rate of return is higher than the required rate of return. the required rate of return of SCB is 11. In the same way the required rate of return and actual rate of return of Peoples Finance during the study period is 20.06% during the study period. the required rate of return of NABIL bank is 14. Since the price of the stock of HBL is also undervalued.86% during the study period. In the same ground the required rate of return of HBL is 10. It implies that the actual rate of return is more than the required rate of return.64% and actual rate of return during the study period is 44. the price of the stock of NABIL bank is called undervalued. In the same line the required rate of return of NB bank is 17.From the above summarized table. It reveals that the actual rate of return of such co. Thus it can be concluded that the stock of Annapurna Finance is undervalued. is higher than 82 . the price of stock of SCB is also called undervalued. Similarly. is 24.18%. Hence the required rate of return is less than the actual rate of return since the price of stock is called under priced.82% during the study period.12% whereas actual rate of return is 23.

It makes the actual rate of return of the sampled companies high and the required 83 . in total among 10 companies taken as sample companies from three sectors the stock of 9 companies’ stock were under-priced and one from insurance sector was overpriced. among the three finance companies taken as sample the stock of all finance companies are under-priced during the study period. The main reason for under-valuation of the stock of the sampled companies is that the price of the stock had reached the highest point during the study period of the banking and financial companies. So. But the NEPSE index did not follow the same speed and the rate of Treasury bill issued by NRB also heavily decreased during the study period. Likewise. Similarly the required rate of return of Himalayan General Insurance Co.43%. Hence it can be concluded that the stock of Himalayan General Insurance Co. as calculated above is 30. one i. Himalayan General Insurance Co.97% and the actual rate of return is 29. was found overpriced and another one was found under-priced.e.45% during the study period. during the study period is calculated 31.Therefore it can be concluded that the stock of Everest Insurance Co. So such price of stock of such company is called undervalued. during the study period is called undervalued. The required rate of return of Everest Insurance Co. From above table in summarize it was found that the 5 banks taken as samples all were under-priced. Similarly the status of among two insurance companies taken as sample companies. is called overvalued during this study period. It shows that the required rate of return is greater than the actual rate of return during the period. Hence the actual rate of return is higher than the required rate of return .the required rate of return in the same period.56% and the actual rate of return during the same period is 41. None of the sample companies shares were equilibrium priced since the sample company’s shares was not found reasonably priced during the study period.

969 6.3647 2. As.262 Calculated Tvalue 1. the calculated required rate of return of the sampled companies seems too low to invest for the investors. most of the sampled companies’ share price become undervalued during the study period.0724 Accepted Rejected 84 .e.88 3. no investors will invest on the stock with lower required rate or return by taking higher risk. 2059 Rupture of peacetalk and restarting war at Bhadra-10 .2059 event Ceasefire on Magh 15.3 Analysis of Signaling and Informational Effect on the Stock Price: To observe the impact of signaling and informational effect paired t-test has been conducted.262 2. Similarly. 2003 Five Major political parties' movement Tabulated Tvalue 2. The details of calculation of paired t-test have been shown in Annexure and the summarized table of the calculation has been presented as below: Table: 5.17. Result from t-test S. The calculated required rate of return of the companies is low because of taking few years data for calculation.0429 Remarks Null Hypothesis Accepted Rejected Accepted 4 5 2.447 1.262 2.N o 1 2 3 Events(Researc h Variable) Ashwin-18. For analyze purpose to see the impact of signaling factors on NEPSE Index during the period of major 5 events the 10 days market index of NEPSE of before and after the events has been taken as consideration for four events and remaining one event i. finance companies and other cooperatives are offering about 9% to 12% return on fixed deposit with out any risk.rate of return low. So. 2060 Nepal's entry on WTO on Sep-11. These event wise data has been analyzed with the help of paired t-test.262 2. 5 Major Political parties movement before and after 7 Monthly index has been taken as consideration due to the long term effect in comparison to other events. 5.

By this reason favorable environment had seen in economy and most of the investors had feel peace and safety environment and all the investors were started thinking positively and hence the NEPSE index has risen during the period of ceasefire. the calculated value of t is 1. less than tabulated value.262 and last one.1 NEPSE Trend For previous 10 and next 10 days of Ashoj 18 first 10 days next 10 days 224 223 222 221 220 219 218 217 216 215 214 1 2 3 4 5 Days NEPSE index 6 7 8 9 10 Ceasefire between Maoist and Government and start of peace talk brought some sort of peace in that time in the country. 2059. 2059 has not affected the price of the stock based on the analysis of above data.No. So. While considering the event of Ashwin 18.No. 85 .From the above table it is clear that from the paired t-test. Chart: 5. Although the null hypothesis is accepted.969.1-4) at 5 % level of significance is 2.447. 5 for 6 degree freedom at 5 % level of significance level is 2. The null hypothesis is accepted because the increasing and decreasing trend is within the 5% level of significance. S. the tabulated value at 9 degree freedom for above first 4 events (S. null hypothesis is accepted and alternative hypothesis is rejected. the following chart shows that the NEPSE index in decreasing trend before the event and it start to increase after the event. It means that the signaling factors on the event of this Ashwin 18.

This can also be proved by the following chart which compares the trend line between the index of NEPSE before 10 days of ceasefire and after 10 days of ceasefire. Hence the null hypothesis was rejected at 9 degree freedom at 5 % level of significance. mathematically it revels that there is no significant change in share price before and after the event of breaking the cease fire and re-start of war. It revels that the cease fire even has played the vital role in change in the share price. However in the paired t-test the calculated value of t is less than the tabulated value of t-test at 5 % level of significance and the null hypothesis was accepted. Chart: 5.This has been also verified by paired t-test that the tabulated value of paired t-test is less than the calculated value of t-test. So there is significant change in share price before and after the event of ceasefire and start of peace talk in the nation. So.2 NEPSE Trend For previous 10 and next 10 days of Ceasefire on Magh 15 first 10 days next 10 days 230 225 220 215 NEPSE Index 210 205 200 195 190 185 180 1 2 3 4 5 Days 6 7 8 9 10 As Maoist violated the ceasefire and then the re-war has started in the country in Bhadra 10. 2060 the NEPSE index starts to go down which can be seen in the following chart also. The result has came out due to taking the 10 days NEPSE index before and after the event but the breaking down of ceasefire was foreseeable before 86 .

So. 87 . So.two weeks of the actual event. null hypothesis is accepted and alternative hypothesis is rejected. the calculated value of t is 1. So the market index in NEPSE was affected before the date of actual event. 2060 can also be presented in the following chart. on Bhadra-25. 2060 (11-Sep.88. Chart: 5. The trend line of 10 days’ NEPSE index before and after the breaking down of cease fire can be presented in the following chart. Although the chart shows that the price index has increased slightly after the event.3 NEPSE Trend For previous 10 and next 10 days of Re-War on Bhadra 10 first 10 days next 10 days 214 212 210 NEPSE Index 208 206 204 202 200 198 196 1 2 3 4 5 Days 6 7 8 9 10 While considering the event of the declaration of Nepal’s entry in WTO. It means that the signaling factors on the event of Nepal’s entry in WTO have not affected the price of the stock based on the analysis of above data. lower than tabulated value. The trend of the index on the NEPSE for the previous 10 days and after 10 days of the event of Nepal’s entry in WTO at Bhadra 25. the null hypothesis is accepted. it is still under the 5% level of significant. 2003).

Chart: 5.4

N PSEtrend for previous 10 and next 10 days of N E epal's entry in W TO first 10 days next 10 days

212 210 208 Index 206 204 202 200 198 196 1 2 3 4 5 D ays 6 7 8

9

10

Due to the political change in the country after the event of Ashwin 18 2059, the major political parties are against this action and started to protest this. By this reason political instability has seen in the country during this period. So the investors have also affected by this cause and the trading of stocks in NEPSE has badly affected. This has been also proved by the paired t-test, as null hypothesis rejected. That the tabulated value at 6 degree freedom at 5% level of significance is 2.447 whereas the calculated value is 3.0724 which is greater than the tabulated value. It revels that the share price has been affected by the movements of major five political parties in the country. The following chart compares the NEPSE index of seven months before the political parties’ movement and NEPSE index of seven months after the commence of the movement. Chart: 5.5

88

**NEPSE Index for Previous 7 Months and Next 7 Months of Five Parties' Movement
**

230 225 220 NEPSE Index 215 210 205 200 195 190 185 1 2 3 4 Months 5 6

first 7 months Next 7 months

7

**5.4 Investors’ Response toward the Change of Stock Price
**

Questionnaire Analysis To find out the investors attitude toward the pricing of the securities and the relevant information regarding the prices of stocks, different types of questionnaires has been prepared and distributed to different sectors respondents. To collect the relevant data, the questionnaires have been distributed to the respondents on stratified random sampling basis. All together 100 sets of questionnaires were presented in front of the respondents. To get the quick and full response, all the questions were objective types. Out of 100 questionnaires, 83 were responded. Investment Pattern in Shares of Listed Companies The first question was asked regarding the investment pattern of shares of listed companies. Out of 83 respondents 64 which is 77.00% have given their positive answer i.e. yes that means they have invested in the shares of the listed companies. And 19, which is 23% have given their negative answer i.e. No. Table:5.18; Investment Pattern

Response Yes No Total No. Of Investors 64 19 83 % 77% 23% 100

89

Investors Interest in Sector Wise Investment Similarly in our second question was about the investors’ opportunity on different sector wise investment. For this question has been prepared with two sectors i.e. Security sector and non- security sector. Out of them in security sectors weight is 77% and non-security sectors weight is 23%. On which in security sector 35 which is 55% respondents out of 83 said better opportunity in banking sector and least 1 which is 2% of the respondents said least opportunity in hotel sector. Based on the present economic and political situation and unsatisfactory performance of tourism sector the respondents have given the minimum weight for the hotel sector. Similarly, the dividend distributed by banking sector as well as better performance of banking sector are the major causes for the respondents to choose it. Similarly in non-security sector most of investors 9 i.e.47% said for fixed assets investments and least 1 i.e.5% investors said for business venture. By analyzing the present political as well as economical situation of the country, respondents are not interested to invest for business venture. So, only 1 of the total respondents prefers for business venture. The summarized results can be presented in following table.

**Table: 5.19; Investors’ Interest in Different Sector
**

Response No of respondents Security Sector Bank 35 Finance Co. 11 Insurance Co 9 Manufacturing 2 Trading 3 Hotel 1 Others 3 Total 64 Non Securities Sector Bank Fixed Deposit 7 % 55% 17% 14% 3% 5% 2% 5% 100% 37% 90 Weight ed

77%

It revels that major of the respondents own shares of companies for price appreciation. 13% own shares in lieu of social status in the society and major of the respondents. 0% 23. 23 i. 91 . None of the respondents were interested to own shares to become director of company. Similarly 8 of the respondents i.e. Out of 64 respondents who have invested in shares. 23 of them i.e. b) Social Status. 64% of the respondents have never sold any shares in secondary market they have owned.6 Purpose of Ow ning Sha res 0.e.e. c) Price Appreciation and d) To become director. 36% 33. 13% Trading of Shares in the Secondary Market: Investors were asked if they have ever sold their shares in secondary market or not. 33 which is 52% of the total respondents own shares for price appreciation in future. Chart: 5. 51% Divid e nd Socia l Statu s Price Ap pre cia tion To be co m e d irecto r 8. 36 % of the respondents have sold their shares in secondary markets and 41 i. Among the 64 respondents who invested in shares.Fixed Assets Business Venture Others Total Grand Total 9 1 2 19 83 47% 5% 11% 100% 23% 100% Purpose of Holding Shares of the Company: Investors were asked for the cause of purchasing shares and the options were given as a) Dividend. 36% of the respondents said they own shares for dividend. The following chart summarize above description.

Of the total 23 investors who sold their shares in secondary market. 18 that is 28 % have purchased shares from secondary 92 . Similarly 3 which is 13% each of investors who sold their shares in secondary market sold their shares to buy other securities and expectation of future price fall. Majority of the respondents sold their shares because of current price appreciation. The no of respondents is 8. d) No payment of dividend by the company and e) Current price appreciation. Investors Trading in Secondary Market S. which is 9% were sell their securities due to no payment of dividend by the company. 7 which is 30% have sold their shares to fulfill their emergency personal needs.20. b) To buy other stocks c) Expectation of price fall. It was found that the cause to sell the securities to buy other securities and expectation of future price fall is equal.7 Reasons for selling shares in secondary market Emergency Personal Need To buy other securities 8 35% Expectation of future price fall No payment of dividend 7 30% Current price appreciation 9% 13% 13% 2 3 3 The next question for the investors was if they have bought shares from secondary market. In the same ground 2. 35%.Table: 5. Of the total 64 investors who invest their money in securities. Of investors 23 41 64 % 36% 64% 100% Again the investors were asked for the reasons for selling shares they were owning and the option for their response was a) For personal need.N o 1 2 Research variables Yes No Total No. Chart: 5.

e. 42%.No Research . Research Variables investors % 1 2 3 4 For high rate of dividend Expected price appreciations To invest excess money Speculative purpose Total 6 7 1 4 18 33% 39% 6% 22% 100% Investors Interest on Price of the Shares To know the interest of investors towards their shares’ price. monthly.market and 46 that is 72% of them have not purchased shares from secondary market. This result has been expressed in the following table.21. Only one which is 6% of the respondents answered that he/she purchase the shares form secondary market to utilize excess money he/she holding. 4 i. 33% and 2 i. 3% of the investors seek the price of their shares weekly. Of o. Table: 5. 6 that is 33% purchased the shares to get the higher rate of dividend declared by the company. Of investors % 1 2 Yes No Total 18 46 64 28% 72% 100% Similarly. the respondents were asked for reasons to purchase shares from secondary market and their available options as answers were a) high rate of dividend b) expected price appreciation c) to invest excess money and d) speculative purpose. Of the total 64 respondents. 21 i. 7 which is 39% of them invested their money in shares through secondary market because of the future expected price gain.e.22. 6%. Similarly. 12 which is 19% of the total investors told that they look for the price of their securities daily.e. Causes for Investing in Secondary Market S. Similarly. one question was presented as how often the investors seek the prices of securities they have purchased. Investors Purchasing Shares form Secondary Market S. variables No. 4 which is 22% of the investors who purchased shares from secondary market for speculative purpose. 27 i. Of the 18 investors who have purchased shares from secondary market. 93 . Table: 5.e.N No.

Theoretically. Factors Affecting Price of Shares 1 2 3 4 5 6 7 Research variables Dividend Earning Per Share Political Stability Economic Growth World Wide Trend Volume of Transactions Rumors Total No.N o 1 2 3 4 5 Research variables Daily Weekly Monthly Seldom Never Total No.24.seldom and never respectively. The result of this question is presented in the following table. 5 that is 6% said world wide trend. question was presented to the respondents as the level of return from the investment presently getting in comparison their 94 .14 which is 17% said economic growth of the country. Of investors 26 19 11 14 5 2 6 83 % 31% 23% 13% 17% 6% 2% 7% 100% Investors Views Regarding the Returns from their Investment To find out how much the investors are satisfied from the returns from their investments. Table: 5. 11 which is 13% said political stability of the country. DPS and EPS are the major factors to influence the share price of a company which is also reflected in the respondent’s view. Investors Seeking for Share Price S. 2 which is 2% of the respondents said volume of transactions and 6 which is 7% said rumors. 19 that is 23% said earning per share. Of investors 12 27 4 21 2 64 % 19% 42% 6% 33% 3% 100 Factors Affecting Price of Shares Regarding the influencing factors for price fluctuation of share in capital market different investors gave different views and their own ideas. Table: 5. 26 of the total 83 respondents. that is 31% gave their views as dividend as the influencing factors.23.

Disregarding the exceptional case.25. the three financial indicators. Similarly. the DPS and NWPS of NABIL bank is negatively influenced 95 . the relationship of MPS on EPS. But the calculation shows that there is no relationship between MPS and DPS of NABIL bank where as People Finance has not declared any dividend during the study period. Everest bank. DPS. in case of NABIL bank and Peoples Finance. According to the coefficient of co-relation the relationship of MPS on EPS. None of the respondents replied that they are getting very high return however 5 out of 64 which is 6% replied that they are getting high level of return. Similarly. DPS and NWPS has good positive relationship with MPS and EPS is the most influencing factor among them. Of o. NWPS is positive and with last year’s dividend is negative. NWPS and current year’s DPS of HBL. similarly 22 that is 27% said moderate. Satisfaction form the Return of Shares S.expectation. EPS. In case of SCB. 25 that is 30% low and 12 that is 14% very low.5 The Major Findings: The major findings based on the analysis are presented as follows: 1. during the five years study period.N Research No. NWPS and last year’s dividend is negative and there exists no relation with EPS. According to the multiple regression. Universal finance. DPS. NWPS and last year’s dividend. The results is presented in the following Table: 5. Himalayan General Insurance and Everest Insurance are all positive. it is found from the calculation of correlation coefficient that in average for all companies. NB bank. variables investors % 1 2 3 4 5 Very High High Moderate Low Very Low Total 0 5 22 25 12 64 0% 6% 27% 30% 14% 100% 5. for the Annapurna Finance the relationship of MPS with EPS is negative where as the relation is positive with DPS. 2.

shows the calculated model of multiple regression is statistically insignificant at 5% level of significance.19 which is greater than 0. The combined effect on MPS of EPS. DPS and NWPS.05. DPS and NWPS significantly affected the MPS of HBL.05. 5. 3. The regression model is statistically insignificant at 5% level of significance as the value of significant f is 0.05. the analysis shows that the combined effect on MPS of EPS. The regression model is statistically insignificant at 5% level of significance as the value of significant f is 0. Similarly.328 which is greater than 0.10% which indicates that the MPS of NB bank is most significantly affected by these factors during the study period. DPS and NWPS. The pricing behaviour of MPS of Everest Bank is significantly influenced by the combined effect of EPS. DPS and NWPS and only 7. The combined effect on MPS of EPS. 96 . DPS and NWPS and 52.20% which indicates that the change in MPS of the SCB is due to the combined effect of EPS. DPS and NWPS of NB bank is 98.80% change in MPS is caused by other external factors. 6.836).8% variation on MPS is caused due to the other factors than EPS. But this relationship established by regression model is statistically insignificant at 5% level of significance as the value of significant f is 0. DPS and NWPS of NABIL bank is 47.10% which indicates that the change in MPS of the NABIL is due to the combined effect of EPS. The calculated value of significant f (0.05.00% change in MPS is caused by other external factors different then EPS. DPS and NWPS of the company during the study period. The regression model is statistically insignificant at 5% level of significance as the value of significant f is 0.49 which is greater than 0. The regression model for HBL shows that EPS.MPS.90% change in MPS is caused by other external factors. DPS and NWPS of SCB is 93. 4. And only 6. Only 15.309 which is greater than 0.

9% change in the MPS of the banking sector companies is due to the effect of the change in EPS. is 46. due to the model is statistically insignificant at 5% level of significance as the value of significant f is 0. DPS and NWPS of banking sectors companies are more important in the formation of MPS than other factors. Different form the sample banking companies. DPS and NWPS of the banking companies only 39. The change in MPS of UFL due to the combined effect of EPS.7. the regression model is also statistically significant at 5% level of significance that the value of f is 0. Ltd. The change in MPS of Himalayan General Insurance Co. DPS and NWPS and 88.90% variation is caused by other irrelevant factors.10% and 6.538 which is greater than combined effect of EPS. 10.10% variation in MPS is caused by the other irrelevant factors. Since.80% change in MPS is caused by other external factors. Peoples Finance did not distribute any dividend during the study period. So. 97 . The combined effect on MPS of EPS and NWPS of Peoples Finance Co. And the regression model is statically insignificant at 5 % level of significance. As per the result of whole banking sector. The regression 0. is due to the combined effect of EPS and NWPS and only 53.20% which indicates that the change in MPS of the Peoples Finance Co. the affect of DPS on MPS could not be calculated. And the regression model is statistically insignificant at 5% level of significance as the value of f is 0. in average 61.90% and 1. DPS and NWPS by 93.33. The regression model is statistically insignificant at 5% level of significance that the value of f is 0. 11. DPS and NWPS by 98. the fluctuation in the MPS of AFCL is less affected by the combined effect of EPS.05.134. the calculation shows that EPS. 8. Similarly. 9.00% variation in MPS is caused by other irrelevant factors.10% variation is caused by other irrelevant factors.

031 which is greater than 0. DPS and NWPS and more which is 59. DPS and NWPS by 60. With respect to the calculation of actual rate of return and required rate of return.12. the pricing behaviour of the sampled companies is significantly affected by EPS.60%. DPS and NWPS as a whole Insurance sector is 80. sector is less which is 40.9% due to the other factors. From the calculation it is found that in average the required rate of return is low and investors would not invest in shares for such low return instead they will invest in fixed deposit of banking and financial institutions which is less risky compared to shares. It shows that in average.3% and 39. DPS and NWPS. these companies stock price are under priced where as the actual rate of return of Himalayan General Insurance is less than required rate of return.40% variation is caused by the other factors. which indicates that in average. DPS and NWPS and only 19. The result computed from the whole sampled companies shows that the change in MPS of the sampled companies during the study period is affected due to the change in EPS. 14.05. Difference from the banking sector.1% affected by financial indicators like EPS. The regression model is statistically significant at 5% level of significance that the value of f is 0.7% change in MPS is due to the other factors than these financial indicators. 13. 9 companies out of 10 have actual rate of return are more than required rate of return. As per the result computed from the combined effect on MPS of EPS. 98 . But this result occurs due to the calculation of only five years data and drastically decreasing interest rate and risk free rate. This relationship model is also statistically significant at 5% level of significance. thus its stock price is found over priced. The regression model is statistically insignificant at 5% level of significance. So. 15. the change in MPS of Insurance companies is due to the combined effect of EPS. the change in MPS of the whole Finance Co.

It is find out from the T-test that the political event of Ashwin-18. 2059 as the alternative hypothesis accepted that null hypothesis rejected at 5% level of significance at 9 degree of freedom. The signaling and informational factors on the event of rupture of peace talk and re-start of war on Bhadra 10. It seems that investors buy the stock only for dividend and they are not interested on speculative 99 . 22. 17. the share price on NEPSE has been positively affected by the event of Ceasefire on Magh 15. 23. As the peaceful environment in a country play a catalyst role in the investing activity. 2003 as the null hypothesis accepted at 5% level of significance at 9 degree freedom. It shows that Nepalese investors are aware of the political and other environment of the country. 18. 19. An evident find out from the study is that Nepalese stock market has the shortage of professional investors.16. The NEPSE index has affected by the event of five major parties political movement as the alternative hypothesis accepted at 5% level of significance and 6 degree freedom. 21. It was found that the investors’ major motives for owning the shares of company are for better price appreciation and to receive the dividend. The share price in NEPSE has not been affected due to the signaling factors on the event of Nepal’s entry in WTO on 11-Sept. 2060 has not affected the price of the stock in NEPSE based on the analysis as the null hypothesis accepted at 5% level of significance at 9 degree freedom. 20. 2059 has not significantly affected the stock price at NEPSE. On analyzing the primary data collected from the respondent most of the investors were asked for their preference of investment sector major portion of them choose the banking sector and minor for hotel sector and business venture.

Some investors are interested on the pricing behavior but they are not interested on trading of the shares in secondary markets. sold their shares due to the expected price appreciation and few of the investors sell their shares due to the non declaration of the dividend by the company. 100 . Major of the investors are not trading in secondary market and those who trade in secondary market. It has been proved that the major influencing factor to the price of the share is current dividend that respondents given the high weight for dividend and lowest weight was given to the volume of transaction out of seven options. people are only investing in shares with the excess money they have over their expenditure. purchase it due to the high rate of dividend. Similarly. 26. The respondents are aware about the price of their share which they own that major of the respondents used to seek the price of their shares on weekly basis on secondary market.motive. Nepalese security market has the shortage of professional investors. As per the respondents investors are not satisfied for the level of return which they are getting as major of the respondents replied for level of return to low out of the five options. 27. So. 25. 24. 28. As per the respondent major of the investor who purchases the shares from the secondary market.

EPS. the highest relationship is 0. Similarly. NWPS. Among the 10 selected companies. With regard to the NWPS. 10 sampled companies were selected and the study was based on the five years data of the corresponding selected companies from 1997-98 to 2001-02.SUMMARY. Along with the DPS and price appreciation. The first objective of the study is to find out the relationship of market price of share (MPS) with various financial indicators like EPS. The study was conducted to find out the behavior of stock price with respect to the movement of various financial indicators. dividend and price appreciation of stock is major factors for the investors to decide about purchasing of shares. NWPS and last year's dividend.79 of NB bank and the least relationship of MPS with EPS is -0.22 of UFL. the most positive relationship of MPS with EPS is 0. political and economic environment etcetera are the other factors to influence the buying and purchasing behavior of the investors. For these purpose. certain external events and other factors. If the organization is not financially strong then it is likely to loose one’s investment one day or other. Here in Nepalese market. To find out the above stated objective financial as well as statistical tools have been used. the study also tried to find out the investors’ response toward the change in the MPS of their stock. DPS. Various statistical as well as financial tools were adopted as test methodology. Similarly.29 of Everest Insurance Company.97 of NB bank and lowest relationship is -0. NB bank's MPS has most positive relationship and the lowest 101 . in case of DPS. But one must look into financial status of organization before making investments. CONCLUSION AND RECOMMENDATIONS This chapter presents the summary and conclusions drawn form the analysis of the study. CHAPTER – 6 6. The psychology of investors is affected by various factors. market rumors.1 Summary Price of security is the outcomes of investor’s psychology.

the MPS of the companies are influenced by the combined effect of EPS.80% variation in MPS of the Company is influenced by the other external factors. DPS and NWPS on MPS. From the comparison it has been found that actual rate of return is higher than the required rate of return of 9 selected 102 . actual rate of return and required rate of return was compared. DPS and NWPS on MPS. DPS and NWPS and this relationship is also statistically significant at 5% level of significance. The next objective of the study is about the identification of the price of stock whether it is over priced. 53. the trend is that the MPS of public quoted companies is above their book value. in an efficient market MPS fully reflects all the historical information publicly available.36% of Himalayan Bank Ltd. The market value is determined by the supply and demand functions. For this purpose r2 has been calculated which denotes the combined effect of EPS. shows that in average. NB bank has highest return that is 61. As per the presentation.20 % of PFL which indicates that the MPS of the PFL is least influenced by combined effect of EPS.relationship is -0. multiple regressions analysis has been conducted with help of SPSS software. As per the calculation. Similarly the lowest co-efficient of determination (r2) is 46.9% which means the MPS of UFL is mostly influenced by the combined effect of EPS.3%. In average EPS is highly co-related with MPS and DPS is least correlated with MPS of selected companies. in case of actual rate of return. However.55 of SCB.10% variation in MPS is due to the other extraneous factors. the highest required rate of return is 31. DPS and NWPS among the all selected listed companies.56% of Everest Insurance and the lowest required rate of return is 10. The co-efficient of determination(r2) of whole selected companies which is 60. Only 1. To find out the pricing status of stocks. Similarly. DPS and NWPS among the all selected listed companies during the study period.89% of Himalayan Bank Ltd. under priced or equilibrium priced. Generally.86% and the lowest is 19. the highest co-efficient of determination (r2) of UFL is 98. Similarly. to find out the impact of the combined effect of EPS.

Only one HGI company’s actual rate of return (29. For this purpose five major events occurred during the last year of the study period in the country has been taken and hypothesis was set whether the events have influenced the NEPSE index or not. The main reason for under-valuation of the stock of the sampled companies is that the price of the stock had reached the highest point during the study period of the banking and financial companies. most investors prefer to buy shares of those companies whose earning are very attractive and 103 . 2059 and the event of five major political parties’ movement have influenced the NEPSE index. the remaining two null hypotheses were rejected. But it depends on the events occurred in the country. The decision for investment largely depends on the information about the performance of the company. 2003 respectively. ceasefire on Magh-15. But the NEPSE index did not follow the same speed and the rate of Treasury bill issued by NRB also heavily decreased during the study period. In general. most of the sampled companies’ share price become undervalued during the study period. none of the sample companies’ stocks are found to be equilibrium priced. As per the calculation three null hypothesis were accepted which means the NEPSE index was not affected by the three corresponding events of Ashwin-18. 2059. Rupture of peace talk and starting of re-war at Bhadra -10. are under priced and the only Himalayan General Insurance Company’s stock price is found over priced during the study period. Similarly. paired T-test was conducted to get the result of third objective of the study. Similarly. 2060 and the event of Nepal’s entry in WTO at Sep-11. So.companies out of 10.97%). It makes the actual rate of return of the sampled companies high and the required rate of return low. It shows that the two events.45%) is less than the required rate of return (30. Signaling and informational factors also play the major role in the pricing of the security in secondary market. It reveals that the stock price of 9 companies out of 10. To find out the signaling and informational effect on share price.

it is found that most of the investors invest in shares for dividend and price appreciation and most of them are not interested about the other indicators which could affect the price of share. It also seems from the questionnaire analysis that the investors are conscious about the market price of the share they have bought as many investors seek for their share’s price daily or weekly. Although they seek for their share price. Among the analyzed financial indicators EPS seems to be most closely related with the market price of share. But as per the questionnaire analysis.dividend pay out ratio is high.2 Conclusion: The study shows that in average market price of share of the sampled companies are seems to be influenced by the combined effect among the analyzed financial indicators like EPS. But these indicators are not alone to influence the price of share and there are other external factors such as economic situation. 6. market condition and many other factors before actually making an investment. This happens because of the decreasing trend of the risk free rate of return which causes the required rate of return lower and the increasing trend 104 . which shows that most of the investors are holding their shares for only dividend and they are not using the change in share price for speculative purpose. economic situation. DPS and NWPS. most of the investors are not trading their shares in secondary market. political situation and other major events occurred in the country are also responsible for the pricing behaviour of the stock of the sample companies. However. rational investor analyzes not only earnings but also various information regarding the companies’ management and their dividend policy. However current year's dividend has minimum role in the fluctuation of the market price. economic growth. Most of the sample companies’ stock price found to be under valued because their required rate of return is lower than the actual rate of return.

of the price of the sampled companies which makes the actual rate of return high. Similarly.3 Recommendations: The findings of the study may be an important information for those who concern. directly of indirectly. This shows that there lacks professionalism in Nepalese investors. the concerned authority is recommended to make aware about the security market to the general public so that they are interested to invest in security market and the previous investors could change as professional investors. economical and social environment has also close relationship with the pricing behaviour of share and they influence the stock market with respect to the importance of the event. So. Most of the stocks of banking and finance companies are undervalued in the stock market. the political. 6. investors are trading the stocks with-out proper analyzing of the financial indicators of these companies. It lacks of professional investors. As per the study. investors are recommended to buy these undervalued stocks by selling other overvalued stocks. the following recommendations can be outlined for the concerned: 1. the study also shows that the some major events occurred in the country also effect on the market price of share. So. with the stock market activities. So. 3. investors are recommended for the detail study of the financial 105 . Thus. The study also shows that Nepalese investors are more conscious towards the dividend and price appreciation of the shares they are investing but most of the investors are only using buy and hold strategy as only few of them are trading their shares in secondary market. So. From the study it seems that Nepalese investors have limited knowledge about security market. 2.

4. Signaling factors should be analyzed on regular basis by the concerned authority so that the future movements of price can be predicted from the side of analyst and investors. 5. 106 . So. investors are recommended to get the consultancy service from the investment experts while making the investment.indicators of those companies before trading the stocks of such companies. The price fluctuating trend is not predictable by general investors.

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