Efficient Market Hypothesis in Combating Insider Trading

A Case Study on Bangladesh

Abstract

 

In coherence with the global markets, Bangladesh experienced the expansion of its stock market. Nevertheless, its emerging markets faced multiple crashes since the ninety's. This study concentrates on the analysis of its financial legal framework based on the efficient market hypothesis in light of the previous market fall. In an efficient market, the available information determines the stock price not the overt action of any person. Hence this hypothesis calls for an effective legal framework requiring the proper disclosure from the relevant stakeholders, their dissemination and the strong adjudication mechanism to enforce the disclosure duties. The investors are supposed to analyze the information before any buy or sale order. Such legal framework prevents possible manipulations by the insiders and their trading thereon. This research is limited to the legislations on insider trading and imbedded analysis thereof. Bangladesh being at the edge of its LDC graduation, this paper stands at the momentum where the capital inflow and its sustainable continuation is a precondition to achieve the targeted growth. The current literature centered their scope within the stock market crashes in Bangladesh and their underlying reasons whereas this paper focuses on the legal framework with a market-oriented objective to implement efficient market hypothesis. Following the qualitative research methodology based on primary and secondary sources of data, the research findings imply that notwithstanding the enactment of stringent legal provisions pursuant to the prior falls, the lack of enforcement is the biggest challenge for the application of efficient market hypothesis in Bangladesh.