SHARE PRICE VOLATILITY AND ECONOMIC GROWTH OF NIGERIA (1987-2016)

SHARE PRICE VOLATILITY AND ECONOMIC GROWTH OF NIGERIA (1987-2016) (ECONOMICS PROJECT TOPICS AND MATERIALS)

ABSTRACT

This research work was conducted to ascertain the effect of share price volatility on the economic growth of Nigeria. The research used series of test such as the unit root test that was used to test for stationarity, the co-integration test  was used to check for the long run and short run relationship between the variables, and the error correction model that estimate the speed at which a dependent variable returns to equilibrium after a change in other variables. The augmented ADF test of stationarity shows that all the variables are not stationary at levels but are stationary at first difference at the 0.05 level of significance, The long run equation reveals that all the variables in the model met a priori expectation in the long run, The all share price index growth rate shows a direct relationship with economic growth in Nigeria but is statistically insignificant as shown by its high standard error. A unit increase in the all share price index would lead to a 0.41 units increase in the gross domestic product. The vector error correction model shows the short run relationship that exists among the variables in the model, the all share index also has a direct relationship with the gross domestic product in the short run. A unit increase in the all share index would lead to a 0.72 units increase in the gross domestic product but is also statistically insignificant. The study therefore recommends among other things that In order to make the stock market more stable and reduce the variances of its performance, the manpower and processes of the Securities and Exchange Commission (SEC) should be further strengthened. This should enable the organization improve on its oversight function of the capital market and engender improvement its performance.

CHAPTER ONE INTRODUCTION

1.1 Background to the Study

The origins of the Nigerian Capital Market date back to colonial times when the British Government ruling Nigeria at the time sought funds for running the local administration. Most these funds derived from agriculture, produce marketing and solid mineral mining. Discovering that these sources were inadequate to meet its growing financial obligations, the colonial administration decided to expand its revenue base by reforming the system of revenue mobilization, taxation and other payments. It also saw the need to raise funds from public sector to cover temporary shortfalls in funds availability. Hence, it found it necessary to establish a financial system by setting up the basic infrastructure for its take off pending the development of an organized private sector.

According to Odife (2000), the first step in this direction was to secure the necessary finance for the development of this infrastructure and long-term capital project. This it did in 1946 when it promulgated the 1946 10-year plan Local Loan Ordinance for the floatation of the first N300,000, 3% Government stock 1956/61 with its management vested on the Accountant-General. In 1957, the government and Other Securities (Local Trustees Powers) Acts was enacted. This law specified the types of securities in which trust funds may be invested. It also clearly defined the powers and responsibilities of trustees. In addition, the colonial government set up the Professor Barback committee to examine the ways and means of fostering a share market in Nigeria. Part of the terms of reference of this committee included the possibility of establishing a capital market in Nigeria. The committee recommended, among others, the creation of facilities for dealing in shares , the establishment of rules regulating share transfer and measures for encouraging savings and issues of securities of government and other organizations.By the end of the year (1957), the colonial administration had promulgated the General Loan and Stock Act and the Local Loan (Registered Stock and Securities) Act on the recommendations of the Barback Committee. In 1958, the Central Bank of Nigerian was established through the Central Bank of Nigeria Act of 1958.

SHARE PRICE VOLATILITY AND ECONOMIC GROWTH OF NIGERIA (1987-2016) (ECONOMICS PROJECT TOPICS AND MATERIALS)