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Sudarshan Kadariya 1
Welcome Welcome
Survey Findings Disclosure
Session
IB&MS Complex
Bagbazar8/27/2011
Market Reactions to Tangible and Intangible Information: A Case of
Nepal
By
Sudarshan Kadariya
Kathmandu
August 27, 2011
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Presentation Plan
8/27/2011
2:30 to
3:30 p.m.
•History of stock market in the World
•Brief history of stock market development in Nepal
•Market reactions to tangible and intangible information: Survey findings
3:30 to
3.45 p.m.
•Tea time
3:45 to
4:30 p.m.
•Continue….
•Major findings and conclusion
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The History of Stock Market in the WorldWhat is the oldest Stock Exchange in the World?
1. Amsterdam Stock Exchange in 1602 in the city of Amsterdam, Netherlands.
What are the first 10 securities exchanges in the World?
2. Paris Bourse in 1724 in Paris, France.3. Philadelphia Stock Exchange in 1790 in Philadelphia, USA.4. London Stock Exchange in 1801 in London, England. However, a market had existed previously (with records beginning in 1698: agro-commodity) at Jonathan’s Coffee House, also in London.5. Milan Stock Exchange in 1808 in Milan, Italy.
Source: http://www.stockexchangesecrets.com/stock-market-history.html8/27/2011
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6. New York Stock Exchange in 1817 in New York, USA. This exchange was preceeded by the Buttonwood Agreement of 1792.
7. Frankfurt Stock Exchange in 1820 in Frankfurt, Germany. 1820 denotes the first records of shares being traded. There was, however, a market for bonds (debt instruments) since the late 18th century.
8. Bolsa de Madrid in 1831 in Madrid, Spain.
9. Toronto Stock Exchange in 1861 in Toronto, Canada.
10. Australian Stock Exchange in 1872 in Sydney, Australia.
Source: http://www.stockexchangesecrets.com/stock-market-history.html Useful: http://www.money-zine.com/Investing/Stocks/Stock-Market-History/8/27/2011
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What about the Indian Stock Market?
• Bombay Stock Exchange in 1875.
What about Nepalese Stock Market?
• Nepal Stock Exchange (NEPSE) in January 13, 1994.
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Now, the history of (common) stock
The oldest existing stock certificate was issued in 1606 for a Dutch company (Vereinigte Oostindische Compaignie)
Lets guess what could be the value of a stock that initially invested for the company?
In Nepal, Biratnagar Jute Mills Limited, in 1937 A.D. issued the first common stock in Nepal.
http://www.stockmarketstory.com/
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Brief History of stock market development in Nepal
• Stock market began with the issue of shares by Biratnagar Jute Mills Ltd in 1937.
• Security Marketing Centre (SMC) was established in April 1977 under Industrial Policy, 1974 with the objective of facilitating the transaction of government development bonds and corporate securities.
• SMC started secondary trading of securities in November 1981 which restricted to government bonds.
• Security Exchange Act, 1983 was enacted in 1983.8/27/2011
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• The then SMC was converted into Securities Exchange Centre (SEC) in 1984. SEC opened its floor for corporate share trading in November 1984.
• The first amendment in Securities Exchange Act, 1983 in 1993 paved the way for the restructuring of stock market in Nepal, which led to establish Securities Board of Nepal (SEBON) in 1993 with a mandate to regulate and develop the stock market.
• The first amendment in the Act also led to convert the then SEC into NEPSE, a full-fledged open-out-cry trading system with the induction of stock brokers in January 13, 1994.
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Who can predict the stock market
(accurately)?
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Survey (A)
Market reactions
Tangible information
Intangible information
Conducted on June/July, 2011
Survey (B)
Investor Awareness
Access to Information
Level of stock investment
Conducted on Oct/Nov, 2010
Survey Findings
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Why we conduct the research/survey/discussion?o For knowledgeo For solution of the problem
What are the objectives of this survey:o To examine the investors’ opinions in Nepalese stock
market on price, returns, investment alternatives, and the practices
o To determine the factors affecting the investment decision making
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Who are the audience of this study?
• Nepalese stock investors (individuals as well as institutions)
– Experienced stock investors– Beginners, and– Potential investors
• Students• Listed companies, and• Policy markers
• In sum, the Nepalese investment communities
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Questionnaire – personal information
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Relationship between education and age of the investors
Educational background of the respondents
Education
Age Group (in years)Total
Below 30 30 to 40 Above 40
No % No % No % No %
Intermediate 0 0 1 2.04 4 8.16 5 10.20
Bachelor degree 7 14.29 11 22.45 4 8.16 22 44.90
Master degree 9 18.37 7 14.29 6 12.24 22 44.90
Total 16 32.65 19 38.78 14 28.57 49 100
Finding: Most of the stock investors are well educated and middle of the career development age.
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Employment of the respondents
Sector of employment of the respondents
EmploymentTotal
No %Government 2 4.00 NGO/INGO 4 8.00 Private Sector 21 42.00 Self-employed 23 46.00
Total50 100.00
Finding: The proportion of self-employed investors is high in the stock market.
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Relationship between (stock market) work experience and age of the respondents
Work experience of the respondents
ExperienceAge Group (in years)
TotalBelow 30 30 to 40 Above 40
No % No % No % No %
below 5 years 14 29.17 11 22.92 3 6.25 28 58.33
5 to 10 years) 1 2.08 6 12.50 7 14.58 14 29.17
Above 10 years 1 2.08 2 4.17 3 6.25 6 12.50
Total 16 33.33 19 39.58 13 27.08 48 100.00
Findings: Nepalese stock market starts to attract younger investors in recent period as the majority of the stock investors are younger. And, most of the stock investors recently entered in the trading activities.
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Relationship between volume of investment and age of investors.
Level of stock investment of the respondents
VolumeAge Group (in years)
TotalBelow 30 30 to 40 Above 40
No % No % No % No %
Less than 5 lakh 10 20.00 5 10.00 2 4.00 17 34.00
5 to 10 lakh 4 8.00 5 10.00 2 4.00 11 22.00
10 to 25 lakh 1 2.00 6 12.00 7 14.00 14 28.00
More than 25 lakh 2 4.00 3 6.00 3 6.00 8 16.00
Total 17 34.00 19 38.00 14 28.00 50 100.00
Finding: There are strong voice of small investors in the Nepalese stock market.
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Investors – brokerage firms and investors opinion regarding the market price
No %
Moderate 8 16.00
Don't know 2 4.00
Low 30 60.00
Very low 10 20.00
Total 50 100.00
( ) High ( ) Moderate ( ) Don’t know ( ) Low ( ) Very low
14. In general, what do you think about the current trading prices of stocks in the market?
Accounts No %0 9 18.00 1 13 26.00 2 13 26.00 3 9 18.00 4 3 6.00 7 1 2.00
10 1 2.00 15 1 2.00
Total 50 100.00
Finding: Most of the stock investors have 1 or 2 accounts with brokerage firms.
Findings: Majority of stock investors perceived that the existing market price is low followed by very low.8/27/2011
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Respondents’ opinion and practices
Stock return Preference
Return Frequency Percent Cumulative Percent
Cash dividend 8 16.00 16.00
Stock dividend 8 16.00 32.00
Increase in market price 32 64.00 96.00
Others 2 4.00 100.00
Total 50 100.00
Findings: Majority of the stock investors prefer capital gain rather than the usual cash dividends and seasonal issues. In another extreme, some investors feel the prestige while investing rather than expectation of returns.
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Factors affecting investment decisions
Factors Frequency Percent Cumulative Percent
Family 2 4.17 4.17
Friends 14 29.17 33.33
Relatives 2 4.17 37.50
Media 20 41.67 79.17
Brokers 2 4.17 83.33
Others 8 16.67 100.00
Total 48 100.00
Findings: The limited investors use their own skills and analytical power in investment decision. The most influencing factors for decision making are media and friends.
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Investors’ practice
No %
Daily 11 22.00
Weekly 15 30.00
Fortnightly 2 4.00
Monthly 10 20.00
Quarterly 1 2.00
Bi-annually 2 4.00
Annually 6 12.00
Others 3 6.00
Total 50 100.00
Finding: Most of the investors monitor their investment weekly, daily and monthly, in order.
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Investors’ opinion
Popular sector of investment
Sector of investment Frequency % Ranking
Banking and finance 43 87.76 1st
Insurance 14 58.33 4th
Hotels 15 65.22 3rd
Hydropower 19 67.86 2nd
Manufacturing 8 34.78 5th
Findings: Banking and finance sector remains the most popular investment sector among the Nepalese investors followed by Hydropower. The least preferred sector is manufacturing.
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Investors’ opinion
Popular information prior investing
Information (tangible and intangible) Frequency % Ranking
Dividend 39 79.59 1st
Earnings 34 69.39 2nd
Number of equity 17 34.69 4th
Book-to-market equity 18 36.73 3rd
Party (UML, Maoist, NC) led government 16 32.65 5th
Findings: The tangible components such as dividends, earnings, number of equity, and book-to-market ratio and the intangible component like political party led government are considered the top five most important factors for investment decisions as per the opinion of individual stock investors in Nepal.
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Investors’ opinion
Methods 1Always 2
34
5Not at
all
(A) Analyze debt/equity, price/earnings, assets and liabilities, dividends, cash flow, sales, earnings estimates, growth rates, etc.
(A) Trend analysis, momentum, price cycle analysis, chart analysis, moving average, etc.
Both (A) & (B)
Noise in the market, newspapers and informal talks, etc
Analysis and revision of own investment in different alternatives
Stock indices movement in foreign markets
Analyze the government policies (tax rates, margin lending, etc)
15. Indicate the level of importance attach to different methods while making investment decisions. (1 = Always, 2 = Sometime, 3 = Rarely, 4 = No, 5 = Not at all)
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Methods for investment analysis N Mean S.D.
(A) Analyze debt/equity, price/earnings, assets and liabilities, dividends, cash flow, sales, earnings estimates, growth rates, etc.
45 1.644 0.712
(B) Trend analysis, momentum, price cycle analysis, chart analysis, moving average, etc.
45 2.933 1.321
Both (A) & (B) 36 2.667 1.287
Noise in the market, newspapers and informal talks, etc 45 1.933 1.116
Analysis and revision of own investment in different alternatives 42 2.214 1.279
Stock indices movement in foreign markets 42 4.048 1.209
Analyze the government policies (tax rates, margin lending, etc) 42 2.286 1.215
Findings: The most used methods of investment is fundamental analysis, and the next is market noise, media and informal talks. The most unpopular is the foreign stock market indices.
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Investors’ perception
When you are able to earn (profit), what is the most important reason?
Frequency Percent
Proper recommendations or advice from broker and analyst 1 2.00
Proper recommendations or advice from family and friends 4 8.00
In general, the market perform well 14 28.00
Own experience, instinct, carefulness and knowledge 28 56.00
Good luck 3 6.00
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Investors’ perception
When you incur loss, what is the most important reason?
Frequency Percent
Improper recommendations or advice from family and friends 1 2.00
In general, the market does not perform well 23 46.00
Own experience, instinct, carefulness and knowledge 19 38.00
Bad luck 7 14.00
Correlation Analysis
Pearson Correlation 0.20
p-value 0.16
N 50
Finding: Nepalese stock investors believe on their own ability and knowledge when they earn & blame for market when they incur losses. There is no correlation between responses at 16 &17
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Rotated Component Matrix(a) Component
1 2 3 4It is important to look at debt and equity structure before investing
0.832
I do use the average prices (6 months, 1 yr, 2 yrs, etc) to determine the current prices
0.821
Political instability is not the major cause of stock market downturn
0.869
News/media largely influence my investment decision 0.748
I believe that success in stock market depends upon luck 0.847
I know how to interpret financial statements in a good way 0.710
The prices move in a direction (increasing/decreasing) provides insight about future price
0.931
Factor Analysis
Findings: The capital structure and average pricing method is one factor that influence the investment decisions, the next is political and media coverage, the third factor is belief on luck and the financial education (literacy), and finally the forth component for stock market movement is trend analysis.8/27/2011
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Factor 1 Factor 2 Factor 3
Factor 2
0.02
(0.91)
Factor 3
-0.23 0.16
(0.12) (0.30)
Factor 4
0.05 0.01 0.05
(0.71) (0.93) (0.72)
Sampling Adequacy Test
Findings: The correlation analysis shows that these four factors are independent. These factors carries perfectly separate information or there is no information overlap between and among them.
Kaiser-Meyer-Olkin (KMO) Measure of Sampling Adequacy. 0.621
Bartlett's Test of Sphericity Approx. Chi-Square 73.36
df 45Sig. 0.00
These values justify
Verification: Correlation Matrix
Findings: This test shows that the sample size for the factor analysis is sufficient.
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Major findings of Surveyi. Nepalese stock market starts to attract younger investors in
recent period as the majority of the stock investors are younger.
ii. Most of the stock investors have 1 or 2 accounts with brokerage firms.
iii. The proportion of educated investors is high in the market, most of them are self-employed and small investors have strong voice in the Nepalese stock market.
iv. The limited investors use their own skills and analytical power in investment decision. The most influencing factors for decision making are media and friends.
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v. Majority of stock investors perceived that the existing market price is low followed by very low.
vi. Majority of the stock investors prefer capital gain rather than the usual cash dividends and seasonal issues.
vii. Banking and finance sector remains the most popular investment sector among the Nepalese investors.
viii.The most used methods of investment are fundamental analysis, and the market noise, media and informal talks.
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ix. Investors believe on their ability when they earn and blame for market when they incur losses.
x. The tangible components such as dividends, earnings, number of equity, and book-to-market ratio and the intangible component like political party led government are considered the top five most important factors for investment decisions as per the opinion of individual stock investors.
xi. The capital structure and average pricing method is one factor that influence the investment decisions, the next is political and media coverage, the third factor is belief on luck and the financial education, and finally the forth component for stock market movement is trend analysis.
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i. The book-to-market decomposition indicates that the intangible information has the significant explanatory power for the explanation on the changes in stock returns.
ii. The inverse and the strong relationship between profitability and the composite share issuance measure shows that the enterprises that have lower past seasonal issuance or the low composite share issuance will have the better future returns.
iii. There is no reliable relation between the total tangible and total intangible components with future returns. The finding shows the mixed results when forecasting the future results.
iv. The composite share issuance measure has more predictive power for future returns than other proxies. When the two proxies of the intangible information included in the analysis, the significance of the one variable tend to disappear thus both proxies does not significantly explain the future returns.
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Empirical results (2005-2010, Sample – 28 enterprises)
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Conclusion
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Nepalese stock market has started to recognize the
impact of intangible information apart from the usual tangible information
impacts
The debt/equity structure and average pricing
method; the political and media coverage; the belief on luck and the financial education; and the trend
analysis are the most important factors that an
investor collect the information and analyze
prior to investment decisions.
1
2
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The tangible and the intangible information does not accurately forecast the
future results.
The composite share issuance measure (seasonal
issues) have more predictive power for future
returns than other measures.
34
THANK YOU
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Survey (B): Survey findings
Survey topic: Investor awareness and level of stock investment in Nepalese stock market
Conducted on October/November, 2010
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Objectiveso The aim of this study is limited on two major facets
of the Nepalese capital market.
To find the extent of relationship between investor awareness and volume of equity investment in secondary market.
To identify the level of equity investors’ access to market information.
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Some findings • Nepalese stock investors are aware.
• The relationship between awareness and level of investment is positive i.e. as the awareness increases, volume of investment also increases.
• There is problem on access to information for equity investors in secondary market.
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• Majority of equity investors in secondary market are not satisfied with the available sources of information and efforts of information disseminating mechanism.
• Equity investors with higher investment have more knowledge/aware in investment than those of small investors.
• Equity investors with higher educational background have more investment than those of lower level of education.
• Thus, the conclusion of the study is: the positive relationship between awareness and equity investment and there is problem on access to market information in Nepalese stock market.
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For further information with these studies, please contact
Email: [email protected]: (977) 9841 325859
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