Statistical Analysis of the Daily Performance of the Nigerian Stock Exchange (July 2006 - June 2007)

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STATISTICAL ANALYSIS OF THE DAILY PERFORMANCE OF THE NIGERIAN STOCK EXCHANGE (JULY 2006 – JUNE 2007)

BY
IKEGWU EMMANUEL M.
F/HD/04/3740001

BEING A PROJECT PRESENTED AS A REQUIREMENT FOR THE AWARD OF HIGHER NATIONAL DIPLOMA IN STATISTICS

PRESENTED TO
THE DEPARTMENT OF STATISTICS, YABA COLLEGE OF TECHNOLOGY, YABA LAGOS.

NOVEMBER 2007.

CHAPTER ONE

1.0 INTRODUCTION

Mobilisation of resources for national development has been the central focus of development economists. As a result of this, the centrality of savings and investment in economic growth has been given considerable attention in various literatures. According to Ekpo and Umoh (2007), for sustainable growth and development, funds must be effectively mobilized and allocated to enable businesses and the economy harness their human, material and management resources for optimum output.

The stock market therefore is an economic institution which promotes efficiency in capital formation and allocation. The stock market enables government and industries to raise long-term capital for financing new projects, and expanding and modernizing industrial/commercial concerns. It should be noted that if capital resources are not provided to these economic areas, especially industries where demand is growing and which are capable of increasing production and productivity, the rate of the expansion of the economy often suffers. Hence Ekpo and Udoh opined that a unique benefit of the stock market to corporate entities is the provision of long-term, non-debt financial capital. Through the issuance of equity securities, companies acquire perpetual capital for development. Through the provision of equity capital, the market also enables companies to avoid over-reliance on debt financing, thus developing and improving debt - to – equity ratio.

The stock market is a market for the trading of company stock and the derivatives of the same which are securities listed on a stock exchange and those traded privately. According to Hagstrom Roberts (2001), the size of the worldwide “stock market” is estimated at $51trillion. The stocks are listed and traded on stock exchanges which are entities (a corporation or mutual organisation) specialised in the business of bringing buyers and sellers of stocks together. Participants in the stock market range from small individual stock investors to large hedge fund traders who can be based anywhere.

Some stock exchanges are physical locations where transactions are carried out on a trading floor by a method known as open outcry. Traders in these types of exchanges may enter “verbal” bids and offers simultaneously. An example of this type is the Nigerian Stock Exchange (NSE) and New York Stock Exchange (NYSE). The other type of exchange is a “virtual” kind composed of a network of computers where trades are made electronically via traders at computer terminals. Actual trades are based on an “auction market” paradigm where a potential buyer bids a specific price for a stock and a potential seller asks a specific price for the stock. When the bid and ask price match, a sale takes place on a first come first serve basis if there are multiple bidders or askers at a given price.

The purpose of a stock exchange is to facilitate the exchange of securities between buyers and sellers, thus providing a market place (Virtual or Real). The exchange provides real-time trading information on the listed securities, facilitating price discovery. Given that certain activities are performed on the stock exchange daily which ginger economic growth in the face of recent upsurge in investment in the Nigerian economy brought about by recent economic policies and reforms. The recent capitalization in the banking industry coupled with the listing of many companies, both national and multi-national, on the stock exchange brought with an upsurge in the activities at the Nigerian Stock Exchange. The volume of trade, the value of trade, the numbers of...
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