Stock Behavior of Financial Institutions

The study about the Stock Behavior of Financial Institutions was, basically, an applied and statistical analysis with exploratory nature with an objective to study the Stock Behavior of Financial Institutions to provide applicable data to the investors of the stock market for decision making.

Note: This Study Is Highly Right Protected But Its Substance May Be Applied For The Academic Purposes Only With Due Reference To The Source.

Findings of the study reveals the fact that stock of local controlled commercial banks is a little more volatile than that of the foreign controlled commercial banks. Correlation between the annual percentage change of KSE 100 Index and the stock of the local controlled commercial banks is a little higher than the foreign controlled commercial banks, i.e. the foreign controlled commercial banks deviates from the trend of KSE 100 Index. There is an increase of 0.65% pre annum in the KSE 100 Index during the period November 1999 to November 2009. Highest KSE 100 Index was noted in the month of March 2008 and the minimum was observed in the month of September 2001. ‘Myth’ that KSE is ‘Bearish’ in the month December and ‘Bullish’ in the month of January is proved to be a fact as the KSE 100 Index is ‘Bearish’ during the last two weeks of December and is ‘Bullish’ during the last three weeks of January.

The impact of seven independent variables, KSE 100 Index, stock capitalization, daily stock turnover, foreign direct investment, interest rate and foreign currency (Dollar, British Pound & Euro), the first three were observed to be behaving more or less similarly and the correlation between the KSE 100 Index and stock of the commercial banks was calculated to be highest. FDI seems to affect, significantly and positively, the stock of mutual funds while stock of the investment banks seemed to be the least affected by the FDI. Impact of interest rate was mostly, correlated, strongly but inversely with the stock of seven categories of financial institutions. Change in the Dollar rate had an inverse relationship with stock of all the seven categories of financial institutions where as the British Pound had strong positive correlation with two categories of financial institutions while the Euro had week and/or inverse correlation with the stock of financial institutions.

The highest fluctuation, observed, in the stock values for the foreign and local controlled commercial banks, during the months of December and January was 0.77% and 26.88% respectively. Stock of foreign controlled commercial banks may fluctuate between 0 – 82.44% per annum, between its maximum and minimum values in a typical year, provided no external factors affect the stock market where as the stock of the local controlled commercial banks fluctuate by 0 – 80.04%. The most significant positive change, observed, in the stock of foreign controlled commercial banks was between the months of August (Minimum) and subsequent month of February. The stock of commercial banks and the modarba companies had the only positive mean annual change while remaining five financial institutions had negative mean annual change in the values of their respective stock. Highest mean annual percentage was noted in the stock of modarba companies during the period 2006 – 2009 while the stock of commercial banks had nominal mean change.