IMPACT OF FINANCIAL MELTDOWN ON NIGERIA CAPITAL MARKET

ABSTRACT

This study investigated the Impact of financial meltdown of Nigeria Capital Market. Specifically, this paper examined the extent and magnitude of contribution of current global meltdown on the performance of the Nigerian Stock Exchange as well as the financial system and their multiplier effect on the real sector of the economy. The study employed a simple regression analysis. In this study, Capital market performance is proxied as Market turnover (MTV) as the dependent variable while the other explanatory variables to measure the global financial meltdown include the volume of traded equity(EQT),the value of the debenture(Deb),and the market share value(SHRS). Results from SPSS analytical tool revealed that the Nigerian Stock exchange meltdown is not attributed to global financial crisis but the instability of macroeconomic variables in the economy like unfavourable exchange rate, inflationary pressure, and problem of Insecurity, inadequate infrastructural facilities but to mention few. Therefore, it was recommended to policy makers that to resuscitate the Nigerian Capital Market, the Government must provide an enabling business environment devoid of corruption, aiding and abetting among the regulatory institutions and stability of macroeconomic variables to attract foreign direct investors.

CHAPTER ONE

INTRODUCTION

1.1     BACKGROUND OF THE STUDY

1.2     STATEMENT OF PROBLEM

The current state of the Nigerian Capital Market brings to fore the strong reign of barest mood and the general perception of a falling market. The meltdown in the Nigerian Stock Market has been unprecedented in its historic evolution since 1960. Its market capitalization has nose - dived from an all time high of N13.5trillion in March 2008 to about N7.89trillion by the beginning of 2nd week of November, 2010. besides, the all-share index (a measure of the magnitude and direction of general price movement) has slumped from about 66,000 basis points to about 24,728 points in the same period, many investors have a hard time dealing with falling stock prices most especially margin traders who are caught in the web of bearish run. No matter how often the virtues of the buy- and - hold method are preached the true test of courage comes when investors watch their holdings nose dive 5% consecutively for several weeks without any end in sight. Anyone who has experience a bear market knows that it takes tremendous discipline and dedication to stick to ones gums while everyone else liquidate their holdings. The statement of the problems is summarized below:

1.      The significant difference in stock index between the boom period and meltdown period.

2.      The relationship between total market turnover of the Nigerian stock exchange in the pre and post economic meltdown.

3.      The fundamental change in the total market turnover in the Nigerian Stock Exchange (NSE) between the boom period and the meltdown period.

1.3     OBJECTIVES OF STUDY

Financial meltdown refers to event like steep fall in stock market, decline in asset value and corporate losses that hurt the economy and investors. The main objective of the study is to provide a scientific investigation into the impact of financial meltdown on the Nigeria Capital Market. Other sub-objectives of this study include:

1.      To identify the significant difference in stock index between the boom period and meltdown period.

2.      To identify the relationship between total market turnover of the Nigerian Stock Exchange in the pre and post economic meltdown.

3.      To identify the fundamental change in the total market turnover in the Nigerian Stock Exchange (NSE) between the boom period and the meltdown period.

1.4     RESEARCH QUESTION

The Nigerian Capital Market as a segment of the financial system has evolved with the growth of the Nigerian economy. The market has been predominantly equities driven with the banking sector making up an important proportion of total market capitalization. This research shall be guided by the following research questions:

1.      Is there any significant difference in stock index between the boom period and meltdown period?

2.      What is the relationship between total market turnover of the Nigerian Stock Exchange in the pre and post economic meltdown.

3.      Is there any fundamental change in the total market turnover in the NSE between the boom period and meltdown period?

1.5     RESEARCH HYPOTHESIS

The research hypotheses that would be tested in the course of this research are stated below as:

1.      Ho: There is no significant difference in stock index between the boom period and meltdown period.

2.      Ho: There is no significant relationship between total market turnover of the Nigerian Stock Exchange in the pre and post economic meltdown.

3.      Ho: There is no fundamental change in the total market turnover in the NSE between the boom period and meltdown period.

1.6     SCOPE OF THE STUDY

The scope of the study is limited to the effects of financial meltdown on the activities of the Nigerian Capital Market. The study was restricted to Nigerian Stock Exchange Branch Anambra State. This research work will cover a period of twelve years (12) from (2000-2012), also, the period covered was divided into boom era which is October, 2000 to March 2007 and meltdown period which is between April 2008 to September 2012. This study made use of secondary data which is the descriptive statistics and annual report was taken from the Nigerian Stock Exchange and Central Bank of Nigeria statistical bulletin.

1.7     SIGNIFICANCE OF THE STUDY

The significance of the study is multi-dimensional. The capital market plays an important role in the growth and development of the National economy. The study will be very useful to prospective shareholders and investors, on how the capital market stimulates investment and savings. Researchers and policy makers will also find the research work very handy by knowing the remote and immediate causes of the financial crisis. The study will assist the government in the area of policy formulation in enhancing the growth and development of the capital market for an improved performance in order to cushion effect of financial meltdown.