Public Youth Campus

Testing Distribution of Risk and Return in Nepalese Stock Market

Abstract:
The present study deals with the normal distribution of risk and return of the Nepalese stock market. Normal distribution of return is an essential assumption in the field of efficient market hypothesis which posits that the returns of a market must follow the random-walk behaviour. This study has used a set of parametric and non-parametric tests to examine the normality of risk and return of daily, weekly, monthly, quarterly and annual figures for twelve years from mid-July 2000 to mid-July 2012 with three non-overlapping sub-periods (2000/01-2003/04, 2004/05-2007/08 and 2008/09-2008/12). The returns are positively skewed for all the cases over the period except daily returns. The daily and weekly returns are not found normally distributed, which denies the random-walk behavior of stock prices. However, the monthly, quarterly and annual returns are found normally distributed, and therefore the randomwalk behaviour of stock prices is accepted in Nepal. However, risks have been distributed non-normally in all the cases. Thus, risk and return relationship found inconsistent in the Nepalese stock market. So investors may have the chance to earn abnormal returns. Hence, the market is not efficient in the weak-form of market efficiency.

 

 
Website Security Test