1. Welcome
Survey Findings
Disclosure
Session
IB&MS Complex
Bagbazar8/27/2011 1Sudarshan Kadariya

2. Market Reactions to Tangible and
Intangible Information: A Case of
Nepal
By
Sudarshan Kadariya
Kathmandu
August 27, 2011

3. Presentation Plan
8/27/2011 3
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
Sudarshan Kadariya

4. The History of Stock Market in the World
What 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.html
8/27/2011 4Sudarshan Kadariya

5. 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 5Sudarshan Kadariya

6. What about the Indian Stock Market?
• Bombay Stock Exchange in 1875.
What about Nepalese Stock Market?
• Nepal Stock Exchange (NEPSE) in January
13, 1994.
8/27/2011 6Sudarshan Kadariya

7. 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/
8/27/2011 7Sudarshan Kadariya

8. 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 8Sudarshan Kadariya

9. • 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.
8/27/2011 9Sudarshan Kadariya

10. Who can predict
the stock market
(accurately)?
8/27/2011 10Sudarshan Kadariya

11. 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
8/27/2011 11Sudarshan Kadariya

12. Why we conduct the research/survey/discussion?
o For knowledge
o 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
8/27/2011 12Sudarshan Kadariya

13. 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
8/27/2011 13Sudarshan Kadariya

14. Questionnaire – personal information
8/27/2011 14Sudarshan Kadariya

15. 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.
8/27/2011 15Sudarshan Kadariya

16. Employment of the respondents
Sector of employment of the respondents
Employment
Total
No %
Government 2 4.00
NGO/INGO 4 8.00
Private Sector 21 42.00
Self-employed 23 46.00
Total
50 100.00
Finding: The proportion of self-employed investors is high in the stock
market.
8/27/2011 16Sudarshan Kadariya

17. Relationship between (stock market) work
experience and age of the respondents
Work experience of the respondents
Experience
Age Group (in years)
Total
Below 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.
8/27/2011 17Sudarshan Kadariya

18. Relationship between volume of
investment and age of investors.
Level of stock investment of the respondents
Volume
Age Group (in years)
Total
Below 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.
8/27/2011 18Sudarshan Kadariya

19. 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 19Sudarshan Kadariya

20. 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.8/27/2011 20Sudarshan Kadariya

21. 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.
8/27/2011 21Sudarshan Kadariya

22. 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.
8/27/2011 22Sudarshan Kadariya

23. 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.
8/27/2011 23Sudarshan Kadariya

24. 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.
8/27/2011 24Sudarshan Kadariya

25. Investors’ opinion
Methods 1
Always 2
3
4
5
Not 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)
8/27/2011 25Sudarshan Kadariya

26. 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.
8/27/2011 26Sudarshan Kadariya

27. 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
8/27/2011 27Sudarshan Kadariya

28. 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 &178/27/2011 28Sudarshan Kadariya

29. 8/27/2011 29Sudarshan Kadariya

30. Rotated Component Matrix(a)
Component
1 2 3 4
It 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 30Sudarshan Kadariya

31. 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 45
Sig. 0.00
These
values
justify
Verification: Correlation Matrix
Findings: This test shows that the sample size for the factor analysis is sufficient.
8/27/2011 31Sudarshan Kadariya

32. Major findings of Survey
i. 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.8/27/2011 32Sudarshan Kadariya

33. 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.
8/27/2011 33Sudarshan Kadariya

34. 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.
8/27/2011 34Sudarshan Kadariya

35. 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.
8/27/2011 35
Empirical results (2005-2010, Sample – 28 enterprises)
Sudarshan Kadariya

36. Conclusion
8/27/2011 36
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
Sudarshan Kadariya

37. 8/27/2011 37
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.
3
4
Sudarshan Kadariya

38. THANK
YOU

39. Survey (B): Survey findings
Survey topic:
Investor awareness and level of stock
investment in Nepalese stock market
Conducted on October/November, 2010
8/27/2011 39Sudarshan Kadariya

40. Objectives
o 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.
8/27/2011 40Sudarshan Kadariya

41. 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.
8/27/2011 41Sudarshan Kadariya

42. • 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.
8/27/2011 42Sudarshan Kadariya

43. For further information with these studies,
please contact
Email: su.kadariya@gmail.com
Cell: (977) 9841 325859
8/27/2011 43Sudarshan Kadariya