ABSTRACT
This project was aimed at evacuating the Efficiency of
the Nigerian Capital Market, to discover its problem and its causes, prescribe
solutions and give it adequate rating as to its efficiency mode of operation.
In the methodology, the mode of data collection techniques employed is primary
and secondary data. Here the researcher adopted judgmental sampling techniques,
while this NSE as institution to cover the image view of Nigeria capital market
operational efficiency was chosen as the population and sample size based on
the nature of the research work, and the mode of data analysis employed by the
researcher is descriptive statistics as deemed important for the analysis.
Thus, it suffices to say that efficiency of the capital market is a necessary
condition for growth in Nigeria, based on this research it was found out that,
the Nigerian capital market is semi-long efficient in mode of operation.
TABLE OF CONTENT
Title Page - - - - - - - - - - - - - - - - - - -i
Approval Page - - - - - - - - - - - - - - - - - - -ii
Dedication- - - - - - - - - - - - - - - - - - - -iii
Acknowledgement - - - - - - - - - - - - - - - - -iv
Abstract - - - - - - - - - - - - - - - - - - - -v
Table of Contents - - - - - - - - - - - - - - - - -vi
CHAPTER ONE
1.0 Introduction - - - - - - - - - - - - - - - - - -1
1.1 Background to the study - - - - - - - - - - - - - - -1
1.2 Statement of the problem - - - - - - - - - - - - - - -5
1.3 Objectives of the study - - - - - - - - - - - - - - -5
1.4 Research hypothesis - - - - - - - - - - - - - - - -6
1.5 Significance of the study - - - - - - - - - - - - - - -6
1.6 Scope of the study - - - - - - - - - - - - - - - - -7
1.7 Definition of the key
terms - - - - - - - - - - - - - -8
CHAPTER TWO: LITERATURE REVIEW
2.1 Introduction - - - - - - - - - - - - - - - - - -10
2.2 The concept of capital
market - - - - - - - - - - - - -10
2.3 Segments of the capital market - - - - - - - - - - - - -21
2.4 Theoretical framework and
fundamental analysis - - - - - - - -27
2.5 The concept of capital
market efficiency - - - - - - - - - - -30
2.6 Implications of market
efficiency - - - - - - - - - - - - -36
2.7 Determinant of stock
price movements in the secondary market - - - - -38
2.8. The financial
performance of the Nigerian capital market - - - - - -42
CHAPTER THREE: RESEARCH METHODOLOGY
3.1 Introduction - - - - - - - - - - - - - - - - -47
3.2 Research Design - - - - - - - - - - - - - - - - -47
3.3 Population of the study - - - - - - - - - -- - -- -- - -47
3.4 Sample size and sampling
technique - - - - - - - - - - - -47
3.5 Instrument of data
collection - - - - - - - - - - - - - -48
3.6 Source of collection - - - - - - -- - - - -- - - - - -48
3.5 Techniques of data
presentation and analysis - - - - - - - - - -48
CHAPTER FOUR:
DATA PRESENTATION, ANALYSIS AND INTERPRETATION
4.1 Introduction - - - - - - - - - - - - - - - - - -50
4.2 Results and discussion - - - - - - - - - - - - - - -50
4.3 Test of hypotheses - - - - - - - - - - - - - - - - -56
CHAPTER FIVE: SUMMARY, CONCLUTION AND RECOMMENDATIONS
5.1 Summary - - - - - - - - - - - - - - - - - - -58
5.2 Summary of findings - - - - - - - - - - - - - - - -59
5.3 Conclusion - - - - - - - - - - - - - - - - - -60
5.4 Recommendation - - - - - - - - - - - - - - - - -60
References - - - - - - - - - - - - - - - - - - -62
Appendix - - - - - - - - - - - - - - - - - - -63
CHAPTER ONE
INTRODUCTION
1.0 BACKGROUND TO THE STUDY
The stock market is widely
described as a barometer of any nation's economy including Nigeria, a leading
indicator of its direction. Following this recognition on the role of the
capital market, market experts in past conducted many studies.
These include the Efficient
Market and Random walk Hypotheses as well as fundamental and technical analysis
based on the important role of market shares price information to the potential
and existing shareholders or market actors at any point of time.
The capital market is a subset
of the financial system that serves as the engine of growth in modern
economics. It is the major part of financial system that provides long term
funds for part of financial system that is responsible for efficiently
channelling of funds from the surplus unit to the deficit economic units for
long term economic and productive activities which in its growth potential
leads to strong financial performance of the whole units of the economy i.e.
banks (financial institution), non financial institutions, firms, household and
government.
The capital market is also a
financial market, which trades in medium to long term financial instrument
(stocks and bonds) with maturity in exceeds of one year. It is a network of
participants, instrument and facilities, which function basic savings into
long-term investment for socio economic development. The funds are sourced to
facilitate efficiently the flow of saving into long-term investment for socio
economic development. The funds are sourced from the public and corporate
bodies (investors) who subscribes to the securities of the issuing entities
with the hope of deriving certain benefits afterwards, as (ROI) return on
investment.
An efficient functioning of a
financial system facilitates the free flow of flow of funds to more
economically productive activities, thus promoting investment from the capitals
market. The financial system may be viewed as a multi-faced structure in which
the financial institutions and financial markets constitutes its main
components. The efficiency of a financial market is a function of the
availability and utilization of information for making decisions on financial
transactions or activities. The issue of incorporating information in the
capital market has generated a large body of researches, both theoretical and
announcements while others considered private information held, especially by
corporate insiders.
Capital market efficiency
connotes that a market has taken into account all information and the market
prices reflect this information. Market efficiency, however does not simply
occur by itself or because information is freely available in the market. As
Osie (1998) opined, it depends heavily on the analytical and interpretational
abilities of those who trade in the market, the time they have and are ready to
devote towards obtaining and spreading price sensitive information. A market
can be deemed an efficient one when trading on available information fails to
provide abnormal profits.
.It is imperative to state
that market efficiency is still a hypothesis, yet to reach a generally
conclusive view in support or against it despite several empirical studies. The
efficient market hypothesis was introduced in the late 1960s but prior to that,
the prevailing view was that markets were inefficient. Many investors believe
that there could be an efficient market and they could be in different degrees.
There are three forms of market efficiency hypothesis; weak form, semi-strong
form and the strong form. The Nigerian capital market has the stock exchange as
its main institution in the capital market where most of its financial
activities take place. The Lagos Stock Exchange was set up in 1959 based on the
Bareback Committee.
The Capital market thus
provides services that are essential to a modern economy, mainly by
contribution to capital formation through financial intermediation. It also
promotes portfolio diversification, which ensures that savers can minimizes
returns on their assets and reduce risk. (Olowe, 1999). The interaction between
the surplus units and the deficit units actually determined the extent to which
a nation develops in comparison to the international market. It is on this
basis this research tends to explore and examine the efficiency and financial
performance of the Nigerian capital market; in terms of components tradable
instruments before proceeding on the main issues. The capital market in a broad
sense is an arm of the financial market, which trades in medium to long-term
financial instruments (stocks and bonds) with maturity in excess of one-year.
Capital market is segmented into two (unit) - the primary market and secondary
market. The primary market, also called the new issues market, provides for the
purchase of freshly issued securities of a corporate entity or government. On
the other hand, the secondary market-which is our concern as the research topic
indicates, provides the mechanism for trading in existing securities (earlier
issued in the primary market) are bought or sold. The market, therefore,
provides liquidity to investors by ensuring easy convertibility of stocks into
cash. Trading in the market is organized, managed and monitored in Nigeria by
the capital market institutions, which comprises of the Securities and Exchange
Commission (SEC), issuing houses, share registrar, unit trusts and stockbrokers
firms. However, effectiveness in development of any economy depends on an
efficient and financial performance of its capital market.
Mbat (2001) described it as a
forum through which long-term funds are made available by the surplus to
deficit economic units. It must however, be noted that although all surplus
economic units have access to the capital market, not all the deficit economic
units have the same easy access to it. The restriction on the part of the borrowers
is meant to enforce the security of the funds provided by the lenders. In order
to ensure that lenders are not subjected to unlue risks the borrowers in the
capital need to satisfy certain basic requirement, it has very profound
implication for the socio-economic growth and development of any portion.
The capital market can be
divided into primary and secondary components. The primary market is an avenue
for raising fresh or new funds through the issuance of fresh securities,
whereas the secondary market provides the mechanism for the transfer for
existing financial instruments. The literature involves citing difference
contribution on what capital market is all about and what means to follow in
having a strong, viable and reliable market.
However, the state of the
financial system is an inevitable criterion in determining the level of
development in any economy. With the advent, the government has induced
introduction of capital market in Nigeria. As in order developing countries,
but the overriding consideration in this project is to evaluate the efficiency
of the Nigerian Capital Market.
1.2 STATEMENT OF THE PROBLEM
The Nigerian financial market
(particularly the capital market) has been said to not measure up to
expectation. There is lingering desire that the market system be overhauled due
to weakness of the system and since the system is yet to attain the status of a
world class market.
There were other problems
linked with it, for instance they undue delay in delivering of share
certificate and the high interest rate of borrowing funds, poor information
technological factors, world market political dominance factor such
international financial reporting standard compliance. In light of the above,
this study will tend to put straight or clear the waves on the issues involved,
particularly as it relate to efficiency.
1.3 OBJECTIVES OF THE STUDY
The aim of this study to
examine the efficiency and financial performance of the Nigerian capital
market. The specific objectives of the study are to:
1.
To determine the significant relationship between the performance of
the Nigerian capital market and its general price movement.
2.
Evaluate the level of efficiency of the Nigerian capital market; and
3.
Evaluate the account on which the Nigerian capital market could improve
its operational efficiency.
1.4 RESEARCH HYPOTHESIS
The following hypothesis is
raised in null form to guide the study as follows:
Ho 1
There is no significant relationship between the performance of the Nigerian
capital market and its general price movement.
Ho 2
The Nigerian capital is not efficient in mode and form of operation.
Ho 3
The speed of adjustment of the Nigerian capital market stock price to stock
information is not high.
1.5 SIGNIFICANCE OF THE STUDY
This study is undertaken to
establish the effectiveness of market price information and financial
performance of the Nigeria capital operation and its operational role towards
enhancing institutional performance in Nigeria. Thought the scope of the study
was limited to the Nigerian capital market, it is hoped that the exploration of
this market will provide a broad literature on the subject matter by
investigating the empirically the role, which the capital market plays in
enhancing sectorial and global financial performance on the stock exchange
platform. The main importance of this study is what it will provide for policy
recommendations to policy makers as well as accountants and financial analyst
on ways to improve operation on the management of investor's portfolio, proper
investment analysis and to strategies for sound structure of performance
evaluation on the stock exchange market operations.
However, this work will
evaluate various efficiency market hypothesis, literature work, capital
management strategies and their effective application by service industry
(banking sectors) in relevant to the Nigerian Capital Market. This research
work on its continuation, together with the findings that may arise, will prove
useful to particular group of persons or otherwise for various reasons in
accordance with their varying needs. Firstly, the stakeholders, this would
facilitate the investors to manage their portfolio better of when the needs arise
for portfolio diversification and proper investment analysis, more so, for global
investment performances comparison due to availability of information, secondly.
Government also forms one of the major beneficiaries in this clause of version,
it will be acquaint by the government of the importance of Nigerian capital
market price information, policies and how they should be improved to increase
its efficiency by way of; improvement of moderating financial act through CBN
and Nigerian Stock Exchange Commission.
Thirdly, this study will help
the public to restore the lost confidence of the public as regards to the
Nigerian capital market and investment fund mobilization towards enhancing
efficiency in the capital market. Lastly, it will also update the knowledge of
the capital market regulator and academic and future researchers in an avenue
to add value to their existing knowledge and moderate exposition to global
capital market convergence of international financial reporting standards into
a unified field of capital financial transfer of value for investment.
1.6 SCOPE OF THE STUDY
The scope of this research is
to provide an evaluation of the efficiency of the Nigerian capital market. It
is also examine the effort made to improve on the capital market operation
towards enhancing efficiency on the role Securities and Exchange Commission.
While in this regards and based on the nature of the research work emphases
would be directed to the extent to which securities responds to the market
information. It is on this bases and peculiarity, to which efficiency of market
operation had gained in this dimension, here this work will try to evaluate the
role of market information in facilitating Nigerian capital market. However,
this research will be limited to five years research spectrum ranging from
(2008-2012).
1.7 DEFINITION OF THE KEY TERMS
Capital Market:
It is a segment of financial system that is responsible for efficient channeling
of fund from the surplus unit to deficit economic unit for long-term economic
activities.
Central Security Clearing System: These are major operator on stock exchange market,
which ensures clearing depository and settlement agency.
Finance Intermediary: They are described as an economic agent that connects
surplus and deficit agents.
Financial System: These are financial interrelated system that allows the transfer of money
between savers (and investors) and borrower or corporate sectors.
Issuing House:
These are institutions, which are registered by Securities and Exchange
Commission and assist corporate bodies and government entities to access
long-term funds by packaging securities issues for subscription on their behalf.
Money Market:
This is a segment of the financial market that facilitates the mobilization of
short-term funds for a period of not more than one year.
Portfolio Diversification: This entails the systematic allocation of investment holding
into different investment unit.
Quoted Shares:
These are categorical of public company shares that are listed on the stock
exchange market for dealings.
Rate of Return:
This is minimum required rate of return that is expected to earn to satisfy the
whole shareholders aggregates benefit or dividend payment.
Registrar:
These are capital market official keeps comprehensive up date records of all
registered members.
Share Price:
This is the monetary consideration used in determining the worth value of
company authorized issued cost.
Stock Brokers/Dealers: These are institutions that are licensed by the stock
exchange and registered by the commission to buy and sale quoted securities on the
stock exchange on behalf of the investing public.
Stock Exchange (SE): Stock Exchange is an organized market registered by the Securities and
Exchange Commission for trading in securities of companies quoted on the stock
exchange.
Stock Index:
This is a method of measuring the value of a section of the stock market.
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