Risk Return Trade off: Evidence from Monthly Return of Banking Industry in Dhaka Stock Exchange

Abstract

In this paper an attempt is made to assess risk return relations focusing investment in banking sector covering 29 listed banks in Dhaka stock exchange out of 30 listed centering on monthly return from investment. For this purpose, different statistical tools are accompanied with risk adjusted performance measures suggested by Jenson, Treynor and Sharpe are employed widely known as Treynor ratio, Sharpe ratio, and Jensen’s alpha. This study found that, over the research period selected stocks show annualized monthly return and downward trend in comparison to market return. According to CAPM about 60% of banking socks show positive results but lower than risk free rate means no market risk premium to investors. Simultaneously, all risk adjusted measures show that all stocks are under performing with less diversification opportunities. This study also assess options to select strongly correlated stock through correlation matrix, which show strong correlation between The City Bank and Uttara Bank Limited with 80% has an option to create portfolio,

JEL Classifications: G11, G12

Keywords: Holding period Return Beta CAPM, Sharpe Ratio, Treynor Ratio, Jensen Ratio.