CHAPTER ONE
INTRODUCTION
1.10 GENERAL OVERVIEW
For any economy to remain afloat in it’s bid for survival in today’s globalization, deregulation and liberalization of markets, it needs to have an efficient financial system to direct the allocation of its resources capital markets and institutions, of which the stock exchange is an integral part of have become of, paramount importance in a dynamic economy as Nigeria.
The capital market is a sub-set of financial system that provides the accelerated growth of the economy. This it does by efficiently channeling fund from investors into productive sectors of the economy. It serves as an avenue for government and companies to raise long-term funds to fiancé their activities.
The capital market consists of a network of institutions and individuals comprised of regulators and operators who, together, facilitate the smooth operation of the market. In other words, the capital market comprises, providers of funds (investors), users of funds (companies and governments), intermediaries (stock brokers, issuing houses, registrars) and regulators (SEC, the Nigerian Stock Exchange and Central Bank of Nigeria).
The Nigerian Capital Market is made up of basically two components the primary and secondary market. The initial sale of securities from the issuing corporation or government to the investor is done in the primary market. The issuers uses the funds raised to expand production, build infrastructures and the like very few investors can be persuaded to tie up their funds indefinitely. Therefore, securities are usually negotiable, enabling the initial buyers to re-offer the securities to any interested party at any prices which is mutually satisfactory. It is, therefore, a function of securities exchange to provide an arena where such mutually satisfactory prices may be determined. It is in the regard that it becomes important to analyze the stock pricing function of the Nigerian capital market.
1.11 STATEMENT OF THE PROBLEMS
As a result of both institutional and individual investors staking out their hard earned money in order to earn a reasonable return on securities acquired in companies, it would be necessary to know whether the shares and securities acquired in companies quoted in the Nigerian Stock Exchange are property priced. However, there is great need to critically consider the following relevant problems as regards the research topic:
a. Lack of information from listed companies
b. Lack of knowledge of the operations and functions of the stock exchange.
c. Difficulty in obtaining quotation in the stock exchange
d. Lack of clear understanding of the pricing of shares and securities in the Nigerian Stock Exchange
1.12 SCOPE OF THE STUDY
As the topic suggest, this study focuses on the pricing function of the Nigerian Capital Market.
Therefore, the study confines itself to history, operations and functions of the Nigerian capital market in relation to stock pricing.
In so doing, the Nigerian Stock Exchange (NSE) will be used as a case study. It would cover the period between 1996 to 2000.
1.13 SIGNIFICANCE OF THE STUDY
This study would be significant to the following people and in the following ways:
i. This study would be of great benefit to market operators like the stockbrokers, issuing houses and their likes, as it would bring out their short coming in the area of pricing of securities.
ii. It would also be valuable to public investor as it would enlighten them on stocks to invest in.
iii. The study would also be significant to students of fiancé, accounting, economies and business administration, as it would educate them on the pricing function of the Nigerian capital Market.
iv. The study would assist policy makers in the Nigerian Capital market in developing strategies that would improve pricing efficiency and thereby improving the general efficiency as a result.
1.14 OBJECTIVES OF THE STUDY
In the light of the pervasive ignorance shrouding the operations of pricing in the Nigerian capital Market, this study is set to achieve the following specific objectives:
a. To appraise securities pricing in the Nigerian Capital Market
b. To evaluate the various methods used in price determination of shares and securities.
c. To inquire into the efficiency of the market for securities.
d. To determine the trend of share prices on the Nigerian Stock Exchange (NSE)
e. To inquire into the factors that solely determine the prices of securities in the Nigerian Capital Market.
f. To find solution to obstacles facing pricing of securities on the Nigerian Stock Exchange.
1.15 HYPOTHESIS
For the purpose of this research work, it is desirable to test the hypothesis so as to make valid conclusions to either accept or reject the assumptions on the following basis.
Ho: Securities in the Nigerian Capital Market are not efficiently priced.
Hi: Securities in the Nigerian Capital Market are efficiently priced.
1.16 RESEARCH QUESTIONS
This research work will attempt to answer the following questions:
(i) How fair are prices of securities in the capital market?
(ii) How relevant are the method of pricing securities used in the Nigerian Capital market in relation to other methods available?
(iii) How fast does security prices response to available information on companies performance and the state of the economy.
(iv) To what extent do public investors place reliance on prices of securities in this market.
(v) What correlation exists between prices of securities and companies levels of economic activities.
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