Impact of capitalization on asset price bubble in Dhaka stock exchange

The objective of this paper is to investigate whether any of the financial intermediary factors treated as outliers (which stand here as a proxy of capitalization that results through the public policies and huge liquidity of fungible investment funds in the stock market of Dhaka Stock Exchange (DSE) came through easy bank-loans) play any role for the surge in stock prices which is termed as stock market bubbles. To attain this objective, the study employs two techniques. First, the simulation technique is adopted by incorporating the long memory models of Geweke and Porter-Hudak (1983) and second, the ordinary least square regression technique is used to identify the impacts of capitalization on aggregate stock market price. In the simulation process, observed facts reveal that additive outliers affect the bias and MSE of the estimated fractional parameter. The size of the additive outliers in the data generating process has also important effects on the estimated fractional parameter. The result exhibits non-trend fluctuations that are influenced by a stochastic process of surge in the stock prices shaping in bubbles in the capital market. It is also shown that huge capital availability in the DSE through easy bank loans and other informal sources has a significant influence on asset prices inflating them often into bubbles.