Citation:Chandrasena, S.M., C.S.P.K. Fernando and R.M.C.S. Ranaweera, 2014, Macro-Economic and Internal Determinants of Share Prices in Sri Lanka, A Case from Colombo Stock Exchange- Banking Sector, In: Proceedings of the 5th International Conference on Business and Information, University of Kelaniya, pp 62-70.
Date:2014
Abstract:
The focus of this study is to identify the relationship between internal and macro-economic determinants on share prices in
Sri Lankan based banking companies in the Colombo Stock Exchange (CSE). The study uses panel data pertaining to the
banking sector over the period of seven years from 2006 to 2012. The fundamental purpose of this research is to ascertain
the syndicate effect of profitability, dividend payout ratio, return on asset, Gross Domestic Production (GDP) and inflation
(Independent variables) with share prices (Dependent variable). A sample of 7 listed banks has been selected from the CSE
for the study. The basic objectives are to identify the relationship between share prices and selected independent variables
and to capture the impact of unobserved data on share prices. Pool regression model and fixed effect model are employed to
meet the objectives of the study. The results of the pool regression model show that profitability of the firm and GDP have a
positive significant impact on market stock prices. By capturing the impact of unobserved data the entity fixed effect model
reveals that certain banks had firm specific effects on share price. The time fixed effect model shows that favorable time
periods cause to make favorable changes in share prices.
