ABSTRACT
Musleh (2009) studied the
implications of the global financial on macroeconomic and development policies
in Pakistan and discovered the financial crisis led to the fall of liquid
assets, gradual economic development, currency value and equity prices decline,
etc. According to Jenrola & Daisi (2012), the collapse of the Nigerian
Stock Exchange is not credited to the global financial crisis but as a result
of the volatility of macroeconomic variables. Previous studies conducted
revealed divers results on the effects of the global financial crisis on the
stock market covering shorter periods of analysis. This study is intended to
examine impact of financial crisis on the fluctuations of Nigerian stock market
Development taking into account a longer period analysis from 1990 to 2014. The
study used the OLS regression technique to examine the magnitude of the effect
of the financial crisis on the fluctuations in the Nigerian stock market
development using annual time series from 1990-2014. The study revealed that financial
crisis has had no significant on the development of the Nigerian stock market
and so does inflation. Gross domestic product and exchange rate rather had an
effect on the development of the Nigerian stock market. The study therefore
recommended that policy makers make efforts to implementing favourable policies
or measures aimed at improving economic growth and reducing the rate of
inflation in the economy, regulatory authorities implement policies aimed at
stock market development by encouraging more domestic currency purchase which
yield in country‟s exchange rate appreciation, the Nigerian stock market should
engage in activities which improve stock market development, regulatory
authorities ensure transparent and fair trading transactions and dealings in
the Nigerian stock market.
CHAPTER ONE
INTRODUCTION
1.1 Background to
the Study
The global financial crisis can
be traced to the period of subprime mortgage crisis which occurred in the
United States of America (USA) in 2007 spreading to other parts of the world
and the economy as a whole. The crisis also affected some developed and
developing economies such as Europe, United Kingdom, Asia, Japan, Nigeria, etc.
(Sere-Ejembi, 2008). The global financial crisis brought about adverse effects
in the economy such as credit and liquidity crunch, declining consumer demand,
loss of jobs, downfall of the stock market, decreasing output and other various
macroeconomic volatility indicators (Steinberg, 2008).
Prior to the global financial
crisis, the Nigerian stock market was among the most rewarding financial
institutions in the economy as a result of the banks consolidation exercise in
2004 leading to a rise in All share index (ASI) and Market capitalisation (MCA)
to about 66,371 points and N12.64 trillion respectively in 2008 (George,
2008; Ajakaye & Fakiyesi, 2009).
In the early part of 2008, the Nigerian Stock Exchange (NSE)
had all share index and market capitalisation of 58,580 listings and N10.264
trillion respectively. The all share index and market capitalisation continued
to rise till it attained its highest value of 66,371 points and N12.64
trillion respectively at the close of 2008 first quarter. Subsequently after it
attained its highest value, all share Index dropped inevitably by 20% which
persisted till it ended up with 27.9% decline (George, 2008; Ajakaye &
Fakiyesi, 2009).
The global financial crisis
persisted bringing down market capitalisation to about N5.4 trillion
during the fourth quarter of 2009 (Aluko, 2008 and Olaoye, 2010). This disclosed negativity from the
first quarter of 2008 to fourth quarter of 2009 of which All share index and
market capitalisation went short by about 67% and 62% as a result of the global
financial crisis on the Nigerian stock market (Ajakaye & Fakiyesi, 2009).
The Nigerian stock market
witnessed instability in 2009 third quarter arising from declining market
indices due to constant fall in share prices. The resultant effect was a
capital market that was unfavourable and less attractive to investors after its
drastic decline between 2008 and 2009.
Market capitalisation in the
Nigerian Stock Exchange (NSE) decreased to N5.23 trillion in the
concluding week of September 2009 from N6.18 trillion at the opening
week of that quarter. Also, all share index closed at 22,507.08 basis points at
the close of September 2009 from 22,861.55 basis points initially in the
quarter, signifying a decline. This trend was as a result of the decline in
share prices of banks which accounts for 60% of the NSE market capitalization.
Consequently upon this development, all capital market operators were mandated
by Securities and Exchange Commission (SEC) to put a stop to periodic
registration with a view to improving capacity (Okeke, 2009).
Total market value of 309 listed securities on the exchange rose by 159.6% to close at N13.295 trillion by the end of 2007. The increase in market capitalisation was as a result of price appreciation. Market capitalisation of 212 equities listed accounted for N10.301 trillion or 77.5% of the aggregate market capitalisation. All share index also increased by 74.73% or 24,800.92 points to close at a historic value of 57,990.22 points in 2007 compared to the previous year which closed at 33,189.30 points. Its performance revealed a positive improvement in the prices of a large number of quoted equities.
Total market value of 309 listed securities on the exchange rose by 159.6% to close at N13.295 trillion by the end of 2007. The increase in market capitalisation was as a result of price appreciation. Market capitalisation of 212 equities listed accounted for N10.301 trillion or 77.5% of the aggregate market capitalisation. All share index also increased by 74.73% or 24,800.92 points to close at a historic value of 57,990.22 points in 2007 compared to the previous year which closed at 33,189.30 points. Its performance revealed a positive improvement in the prices of a large number of quoted equities.
As at January 2011, the capital
market closed at a growth of 8.3% as the Nigerian Stock Indicator grew from
24,770.52 points to close at 26,830.97 points. Market capitalisation of
equities listed summed up to N675 billion to close at N8.575
trillion coupled with the reforms introduced into the financial system and the
market regained itself back in 2010. The capital market gained better
performance later in terms of value and volume of shares traded. A commitment
of about N104.04 billion was made by investors on 10.84 billion shares
in January 2011 revealing an increase of 114% above N48.65 billion which
was invested in 8.63 billion shares in 2010. The capital market also
experienced some volatility between end of January and beginning of February
2011. Looking at the investments in the first few days of that year, investors
have witnessed higher appreciation that is higher than growth posted by index.
Notwithstanding year to date growth of index still being below 10%, some stocks
posted growth of between 18% and 22% (Ogoh, 2011).
As at March 13, 2012, All Share Index went up by 0.65% to close at 21,227.90 points in contrast to its rise by 0.67% revealed in the records of the previous day closing at 21,091.36 basis points. Market capitalisation in the Nigerian stock market appreciated byN6.69
trillion greater than the rise by N44.6 billion revealed in the previous
day‟s records closing at N6.65 trillion. Volume of transaction in
equities declined by 15.6% resulting from an exchange by the investors of 243.45
million shares valued at N4.45 billion traded on 4,165 transactions in
the stock market the previous day leading to gain in the market (Johnson 2012).
As at March 13, 2012, All Share Index went up by 0.65% to close at 21,227.90 points in contrast to its rise by 0.67% revealed in the records of the previous day closing at 21,091.36 basis points. Market capitalisation in the Nigerian stock market appreciated by
The Nigerian Stock Exchange (NSE) was formed in the year 1960 and was referred to as Lagos Stock Exchange at that period. In December 1977, it became known as the Nigerian Stock Exchange having its branches founded in the key cities of the country. In May 2009, the exchange had 295 listed securities constituting of 41 federal government stocks, 47 with a total of
1.2 Statement of Problem
The 2008 global financial
crisis was the most unfavourable crisis ever since the great depression of the
1830s and 1930s. It became obvious in September 2008 as a result of its
collapse in various big companies based in the United States of America. Causes
such as decline of bank stock prices, reduced level of production by firms and
increased cost of goods resulting from increased level of demand by the society
which led to financial crisis were reported for months prior to September 2008
in several business journals (McClure & Morton, 2008).
Market capitalisation of the
Nigerian Stock Exchange witnessed a profound recess in activity with an extreme
45.8% decline in 2008 and recollected the period in 2007 when the market rose
by 74.7% showing a significant fall (Ajakaye & Fakiyesi, 2009).
According to Udeme (2009), market capitalisation of more
than 303 listed equities worth N10.18 trillion in 2004 consistently
appreciated to N12.4 trillion in March, 2007 indicating its optimum
record ever attained since its 48 years of operation. Market capitalisation and
all share index also declined to N3.2 trillion and 31,450.78 respectively at close of 2008.
According to Jenrola & Daisi (2012), the collapse of the Nigerian Stock Exchange is not credited to the global financial crisis but as a result of macroeconomic variables volatility in Nigeria such as unfavourable exchange rate, inflationary pressure, insufficient infrastructural facilities, etc.
According to Jenrola & Daisi (2012), the collapse of the Nigerian Stock Exchange is not credited to the global financial crisis but as a result of macroeconomic variables volatility in Nigeria such as unfavourable exchange rate, inflationary pressure, insufficient infrastructural facilities, etc.
Olowe (2009)
also examined the effect of the global financial crisis on stock return
response and Nigerian stock market instability with the use of EGARCH model.
The study reported that stock returns and its instability are free from the
financial crisis gravity due to low exposure of the Nigerian stock market to
the foreign society.
Khlor (2009) threw more light
on how finance and international trade became the main ways through which
western crisis spread to developing economies. In the case of finance, the transmission
is in form of toxic assets, foreign capital flow, liquidity crisis and foreign
domestic investment. He discovered that the value of export declined by 46% in
Japan, 44% in Taiwan, 40% in Singapore, etc
Musleh (2009) studied the
implications of the global financial crisis on macroeconomic and development
policies in Pakistan and discovered that financial crisis led to fall of trade
in goods and services rate, currency value decline, equity prices decline and
interest rate increase declined on stock price index.
Studies carried out previously
indicated diverse results on the effects of the global financial crisis on the
stock market and the economy covering shorter periods of analysis. This study
is however intended to examine the impacts of the financial crisis on the
fluctuations of Nigerian stock market development taking into account a longer
period of analysis.
1.3 Objectives of
the Study
The main objective of the study
is to examine the impact of the financial crisis on the fluctuations of
Nigerian stock market development.
·
To examine the trend of market
capitalisation.
1.4 Research
Hypothesis
The study seeks to
validate the following hypothesis:
H0 –
Financial Crisis has
no effect on
the fluctuations of the Nigerian
stock market
development
H1–
Financial Crisis affects the fluctuations of the Nigerian stock market
development
1.5 Justification
and Significance of the Study
This
study is significant in the sense that the Nigerian stock market is extremely
essential for the growth and development of the financial and industrial
sectors of the country as a whole. This study will be useful to financial
institutions, private investors, financial analysts and government which
constitute the key operators in the stock market in understanding the effects
of the crisis and establish guidelines, legal framework in relation to lending
to avoid situations resulting in crisis.
This study is useful to both to
the financial and non-financial institutions at national and international
levels because the crises affects various aspects of life such as multinational
firms which operate directly or indirectly around the world will discover the negative
effects brought about by the financial crisis and take measures to kick against
such occurrences in the future by diversifying their portfolio.
This study is significant in
providing the public investors with investments to improve their process of
decision making by imparting them with the knowledge of selecting between
medium-term and long-term investments as compared to short term investments
that usually turn into gambling.
1.6 Scope of the
Study
This research intends to study
and examine the impacts of financial crisis on the fluctuations of Nigerian
stock market development. The research digs into a period of 25 years starting
from 1990 to 2014.
1.7 Organisation of
the Study
The study comprises five (5) chapters.
Chapter One introduces the background to the study, statement of problem,
objectives of the study, research hypothesis, justification and significance of
the study, scope and limitations of the study, methodology and organisation of
the study. Chapter two reviews relevant literature. Chapter three entails the
method for the study. Chapter four presents data analysis and discussion of
results. Chapter five covers the summary of findings, conclusions and
recommendations.
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