An Empirical Study on Microeconomic Factors Affecting Stock Price: A Study on Insurance Companies Listed in Dhaka Stock Exchange

Abstract

Purpose: This study aims to reveal the financial factors responsible for the movement of the market stock price of insurance companies listed on the Dhaka Stock Exchange.
Design/methodology/approach: For this purpose, ten years of panel data from 2010 to 2019 covering 15 insurance companies have been analyzed. Hypotheses have been developed and tested using econometric modeling techniques such as Pooled OLS regression, the Fixed-effect model, and the Random-effect model. The independent variables for this study are Return on Assets (ROA), Book Value Per Share (BVPS), Earnings Per Share (EPS), Price-Earnings (P/E) ratio, and Firm Size (SZ).
Findings: The output of pooled OLS shows that ROA, BVPS, EPS, and the P/E ratio have significant positive impacts on the market stock price. The Fixed-effect model shows that ROA and the P/E ratio have significant positive impacts, whereas firm size negatively impacts the market stock price.
Practical implications: The findings of the study will be helpful for shareholders investing in the insurance sector to monitor which factors are responsible for driving stock prices. It will also be helpful for regulators and other relevant stakeholders to monitor the stock market to ensure the sustainable growth of the capital market.
Research limitations: The study only covers fifteen insurance companies listed on the Dhaka Stock Exchange over a ten-year period.
Originality/value: This study is one of the earliest attempts to explore the insurance industry to identify which key factors are primarily responsible for insurance companies' share prices in recent times on the Dhaka Stock Exchange.