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The Role Of The Nigerian Stock Exchange On Capital Formation (1980-2011)
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1.2 STATEMENT OF THE PROBLEM
The Nigerian Stock Exchange market is
faced with numerous problems which comprises of decreased trading
activities where by persistent rise in the demand for securities without
a corresponding increase in its supply. In this case, investments are
not easily found for purchase.
Given the number of years since the
Nigerian Stock Exchange has been established and the substantial
financial resources available in the country, coupled with the existing
institutions one can claim that the entire spectrum of the capital
market has not been sufficiently active, especially when compared with
the capital unit of similar or lesser aged units in other developing
countries. The factors responsible for this could be identified to
include:
(1) High Cost of transaction
(2) Lack of transparency and
(3) Poor economic performance etc.
The
spinal effect of the global economic crisis on the Nigerian Stock
Exchange continued in 2009 with the exorbitant lending rate mounting
pressure on the stock market as a result of massive borrowed fund in the
market. The rush by stock investors to liquidate their investment to
repay their loans in order to avoid the excessive lending rate caused
the Nigerian Stock Market to crash. (Sere Ejembi, 2008) noted that it is
not the global financial crisis and the speculative sub prime mortgage
bubbles and bust alone that is responsible for the crash of the stock
market, other contributory factors lent support. Some of these, namely;
margin lending by the deposit money banks (DMBs), stock price
appreciation that had no correlation with the fundamentals in the
quoting companies and local investors opting to invest in foreign
capital markets to take advantage of the low stock price.
This study
intends to evaluate the performance of the Nigerian Stock Exchange
interms of its trading activities and determine the extent to which it’s
contributes to the capital formation process of the economy of at all
there is causation between them.
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ABSRACT - [ Total Page(s): 1 ]This study was carried out to determine the effect of stock market on capital formation in Nigeria. The variables included in the model were, Gross Fixed Capital Formation, value of share traded, interest rate, inflation rate, commercial bank investment indicator, and Stock Market Capital. Data were sourced from CBN statistical bulletin (2011). The study employed OLS technique to determine the effect of stock market on capital formation. The empirical finding shows that stock market capital, com ... Continue reading---
