Quest on Determinants of Stock Price in Nepal: Evidence of Microfinance Sector Share Listed in NEPSE

Abstract

Stock markets are crucial for economic prosperity, capital formation, and sustainable economic growth. It facilitates resource flow, investment opportunities, pooling funds, sharing risk, and wealth transfer between savers and users. This paper investigates the determinants of stock price traded in Nepal's secondary market through NEPSE, focusing on the microfinance sector. The study uses descriptive, analytical, and inferential research to analyze the determinants of microfinance companies' market prices. The econometric model's coefficient of variation value is 0.90, indicating that 90 per cent change in the market price of the microfinance company is defined by the explanatory variables included in the model. Market price per share is positively correlated with earnings per share, return on equity, price-earnings ratio, and book value, while inversely correlated with floating share size. Independent variables like earnings per share, price-to-earnings ratio, and floating shares are statistically significant. However, other fundamental aspects of equity, such as book value per share and return on equity, are not statistically significant. This highlights the importance of considering company-specific factors in investment decisions in Nepalese capital markets. In conclusion, there is serious gap of financial literacy from the part of vast majority of market participant lacking investment optimization.