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most important outcome from an investment. It measures the investors rate of wealth
accumulation i.e. increase or decrease per period. Risk is defined as the occurrence of
unfavorable outcomes, which is ever harmful for the business.
In Nepalese contest, the institutional set up of securities market began along with the
securities exchange center (now Nepal Stock Exchange Ltd.) in 1976,A.D. In spite of
considerable development there are still more potentialities to be explored for the
development of stock market in Nepal. Most of the potential investors and the
shareholder public themselves are unknown or least understood about risk-return
behavior of stock. Most of the Nepalese investors are finding to visit in single security
due to lack of information and poor knowledge, market intermediates exploit
investors. So, many investors are afraid to invest in stocks. People participation in
securities investment and its dynamic trading plays a vital role in overall economic
development. For this propose potential investors must be able to analyze risk and
return of individual stock and portfolio as well. This will increase their confidence
and ultimately increase stock investment and increase the degree of market efficiency,
which is essential to spreading economic development of the nation.
Banking sector is the most dynamic part of economy, which collects unused funds and
mobilizes in needed areas. It is the heart trade, commerce industry. In Nepalese
context, commercial banks have comparatively good performance among the public
limited companies. Because most of the banks are counted within the top ten positions
among the listed companies on the basis of amount traded, number of transaction,
market capitalization etc. Most of the banks are established with collaboration of
foreign well-known banks. As a public limited company, Nepal Bank Limited (NBL)
is only one Nepalese commercial bank, which is listed in NEPSE. Besides this oldest
bank there are eight other joints venture banks, which are listed in NEPSE. Besides
these, a government bank, Rastriya Banijya Bank, also plays a vital role in banking
sector. In Nepal altogether there are 30 commercial banks.
Specifically, Nepalese banks have a high degree of internal firm specific risk. At the
same time they have to bear more social obligation and government intervention than
foreign banks. However, Nepalese bank has high potentialities to increase their
performance by changing their risk attitude and by improving their internal
3
What is the return and risk on the common stock investment of commercial
banks?
Is the expected rate of return on common stock investment undervalued/
overvalued?
What portion of the total risk can be diversified?
4
What kinds of risk are most prevalent in stock investment, and how could be
they minimized?
the risk and return analysis influences the market price of stock, by making it at an
appropriate level. Apart from this study will be a matter of interest for academicians,
students, researchers, teachers or persons, practicing in the field of finance. In brief,
the study will be significant;
a. To the investors for understanding the risk and return associated with the stock
investment in commercial banks, and for arriving at right decision whether to
invest in stock.
b. To the listed companies for detecting the diversifiable risk and the source of
malpractices in the stock investment, and for solving the unnecessary
controllable conditions.
c. To the regulatory bodies for formulating the effective strategies and polices in
facilitating the operation of the NEPSE and the investment in stock in sound
environment.
d. To the novice researchers for following this study as the main reference.
6 Limitations of the Study
As every research has its own limitation, the study is not far from it. Some limitations
of the Study as follow:
a. Data published from various sources differ from the figure published by
NEPSE and respective commercial banks. However, in this study respective
banks published annual reports data are considered as the basic sources of
data.
b. The study focuses only on the analysis of risk and return on common stock
investment and thus ignores other financial aspects.
c. Only five fiscal year periods, 2008/09 to 2012/13, have been analyzed to meet
the objectives of the study.
d. The study observes only four commercial banks namely, HBL, NABIL, LBL
and BOK, and thus may not fully reflect the whole population.
e. The reliability of the primary data analysis absolutely depends upon the
responses provided by the respondents.