The Effect Of Macroeconomic Variables On Share Price Movement In Nigeria

The Effect Of Macroeconomic Variables On Share Price Movement In Nigeria

Abstract

Share prices of colorful companies move over/ down daily in the capital request across the globe. And the factors that determine this movement have been a major concern to colorful interest groups especially investors, operation and experimenters. This exploration work set out to add to the bettered body of knowledge by examining the effect of macroeconomic variables on share prices over a period of twenty two( 22) times from 1984 – 2005. The design also attempts to contribute to this long continuing capital request mystifications using the Nigerian capital request as a case study, companies were chosen as test cases and a retrogression and correlation analysis was carried out.

The exploration findings showed that interest rate, affectation rate, exchange rate, growth rate, plutocrat force and tip yield doesn’t have significant effect on share prices in the Nigeria Stock Exchange. This study ended with recommendation to colorful interest groups and those interested in farther exploration.

Chapter One

Preface

Background Of The Study

In an arising and competitive frugality like Nigeria, the decision to invest is taken because of the apparent or perceived benefits, which the investor hopes to get. Investment in securities is thus primarily for the purpose of earning income, which could be in form of tip, profit or/ and capital earnings. Though some other reason similar as prestige, power and control also be cited but the primary motive to earns some form of return.

This investment in securities is carried out through a request called the stock exchange. Alile( 1991) suggest that the stock exchange is the hallmark of the of the capital request. While Osaze( 1991) defines that the stock exchange “ principally as a request where buyers and merchandisers of securities operate through brokers to effect sale in securities that have been admitted for listing on the exchange ”. Famnia( 1970) “ proposition of effective request suppositions suggests that stock requests are effective because they reflect the abecedarian macroeconomic geste . This effectiveness implies that a fiscal request incorporates all applicable information( includingmacro-economic fundamentals) in the request, in which the outgrowth is the stylish possible under the circumstances.

Ibru( 2000) said “ it helps in the rallying of domestic and foreign savings for productive investment which is vital for capital conformation for profitable growth and development. It’s also assists in transmitting information on share price and trading volume to the public( Olowe, 1997).

Like other requests, stock exchange installations communication is between buyers and merchandisers. According to Osaze( 1991), securities traded in the capital request can be distributed into fixed securities, variable income securities and others. Ibru( 2000) puts it specifically to include ordinary share, preference share, debenture or cooperate bond, gifts and state government bond. This study will concentrate on the variable income securities with emphasis on common stock, which is the major type of income securities. Besides the colorful conditioning in the stock exchange as depicted by the movement and geste of stock price and volume of trading recorded is a measure of performance of the frugality.

The stock exchange as a request shows the price of securities shifting daily as can be seen from diurnal sanctioned list of the exchange although this change isn’t peculiar to Nigeria. A tremendous swell in price of stock has been accompanied by large diurnal change and historically high trading volume, so it isn’t surprising that similar conditioning have generated new interest in the question of what are the bases for these movements in the stock prices.

The reasons behind movement of prices have been subject to numerous exploration works however there has been agreement as to what accounts or determines this movement. still, Omolehinwa( 2001) said, it may be caused by company’s perceptivity to general profitable factors( methodical note), information organize through effective and determine way, or factors specific to the company( unsystematic note), information not organize through effective and determine way.

Also, Osaze( 1991) linked three orders of factors as abecedarian factors, specialized factors, and effective request thesis.

The abecedarian factors are farther distributed into company related, assiduity related, political, volume of trading, earnings and tip. thus it makes sense, that to make plutocrat in stock request, we need to understand what causes price to change. By having appreciation for effects that motivate stock price changes we can be better at anticipating the direction and haste of price moves(Stocks-core.com, 2002). Having said all these, it’s egregious that the profitable terrain, which a company operates affects it, hence profitable affiliated factors will be examined.

Statement Of Research Problem

The part of capital request in the growth and development of any frugality can not be over emphasized. Its performance at any given time- shares a position of growth in the frugality. A look at the diurnal functionary list of Nigerian stock exchange reveals that share prices of colorful companies assumed upward/ downcast trend. Going by the supposition in fiscal analysis that the ideal of a establishment is to maximize the shareholder’s wealth also the reasons for this, movement should be of concern hence this study will look at the effect of the macroeconomic variables( Interest rate, affectation rate, exchange rate and gross domestic product( GDP) growth rate) on share prices. To be more specific, answers to the following question are sought

What’s the reason for this share price movement?

Do macroeconomic variables affect share prices?

Is there any relationship between macroeconomic variables and share prices?

Statement Of Research Aims And Objects

The end of this exploration is to dissect the impact of macro profitable variables on the prices of shares in stock request. The objects of this exploration includes the following

To punctuate the cause not partake price shift.

To find out their relationship between macroeconomic variables and share price.

To find the degree at dependence of share prices.

suppositions

The following suppositions are to be tested in this study

Interest rate affects share price in Nigerian stock exchange.

Affectation rate affects share prices in Nigerian stock exchange.

Exchange rate affects share prices in Nigerian stock exchange.

Gross domestic product 9GDP) growth rate affects share prices in Nigerian stock exchange.

Compass Of Study

Nigerian stock exchange is the only capital request in Nigeria where securities are traded. This study will concentrate on the ordinary share prices of companies listed on the stock exchange. The period of study shall be between 1980 – 2005( 26 times).

numerous companies are listed on the stock exchange and in different sector(e.g. empire, brewery, food and libationetc.).

Applicability/ Significance Of Study

maturity of studies done on share prices geste have been on company related factors like tip policy, earnings, price earning rate etc, since Nigerian frugality is getting more deregulated and with further companies being listed on the bottom of the exchange, also with public mindfulness of conditioning, going on in the capital request, it becomes more imperative that this study be carried out to contribute to the being knowledge or share price geste . either, it’ll prop operation of Nigeria hype quoted companies in hedging against any threat that might radiate from these macroeconomic variables.

Limitation Of The Study

The major limitation of this study is the smallness of sample size, time period, under disquisition and of course, the vacuity of data. All these were as a result of finance and time factor.

Description Of Terms

Shares These are equities listed on Nigerian stock exchange. These shares belong to the factual possessors of the companies who assume the ultimate threat and are entitled to tip after all other interest have been satisfied.

Capital Market This is a request for long- term securities. It’s made up of a network of fiscal institution that brings together suppliers and druggies of finances in the fiscal intermediation.

Price Price refers to the request price of the common stock as determined at the haggling session. It could also be appertained to as citation.

Nigerian Stock Exchange This is anon-profit timber association primarily responsible for supporting the capital raising process by furnishing the stylish quality, utmost effective and cost effective request place for the trading of fiscal instruments.

Quoted Companies These are public liability companies whose securities are listed on the Nigerian Stock Exchange.

Securities As used in this study, securities are refers to equities, popularly appertained to as ordinary shares.

Data collection this is necessary in any critical step taken in any exploration work. It deals with how those data will be anatomized, penetrated from their sources. Two introductory sources of data collection live and they’re primary source and secondary sources.

Primary sources This sources include carrying out an original disquisition to gain primary data and specifically for your purpose. Data from similar sources are generally attained through checks, compliances and trials. Ojaremeruaye and Oaikhenan( 2001) explained that these data are attained directly by the experimenter through interviews, questionnaires, and direct observation are known as primary data.

Secondary source Any preliminarily published or proved work. Any affiliated subject matter will be secondary source of data collection for a exploration work. The data collection from similar sources are appertained to as secondary data. The experimenter will develop colorful data gathering ways in the course of this work. The further sources of data will be secondary nature.

The exploration will pierce Nigerian stock exchange daily sanctioned list, Federal Office of Statistics publications, CBN publication, Handbooks, magazines, Journals, and journals,etc.