Did the Removal of Stock-Price Floors Improve Short-Run Price Discovery? An Event Study of the Dhaka Stock Exchange

Abstract

This study examines whether the January 2024 removal of stock-price floors improved short-run price discovery and reduced price rigidity in the Dhaka Stock Exchange (DSE). An event-study technique was applied to 338 securities: 306 firms in the main removal cohort, 20 firms in the second-stage cohort, and 12 firms that retained their floors. Market-adjusted abnormal returns were used as the primary specification, while a market model and complete-window samples were used for robustness. Cross-sectional one-sample t-tests assessed abnormal returns, paired-sample t-tests compared pre- and post-removal zero-return rates and intraday high-low ranges, and Welch tests compared treatment cohorts with the retained-floor benchmark. The main cohort recorded a cumulative average abnormal return (CAAR) of -6.77% over [-5, +5], while the second-stage cohort recorded -18.87% over [-3, +3]. Zero-return rates fell from 49.84% to 5.36% in the main cohort and from 97.85% to 3.50% in the second-stage cohort, while intraday ranges increased significantly. The findings are robust for the shorter event windows but sensitive to sample completeness over the longest window. Abnormal returns, zero-return frequency, and the high-low range are proxy indicators rather than comprehensive measures of market efficiency.