AN APPRAISAL OF STOCK PRICING IN THE NIGERIAN CAPITAL MARKET (A CASE STUDY OF NIGERIA STOCK EXCHANGE (NSE)
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AN APPRAISAL OF STOCK
PRICING IN THE NIGERIAN CAPITAL MARKET (A CASE STUDY OF NIGERIA STOCK EXCHANGE
(NSE)
ABSTRACT
The price of a company stock is an indication of the
performance of company where stock is properly priced, investors can invest in
the most profitable companies based on the stock prices of the companies.
It is in line with the foregoing that the researcher has
decided to appraise the efficiency of stock pricing on the Nigerian Stock
Exchange
In doing thus, the researcher adopted the historical and
descriptive methods of research. Data was sourced through the use of
interviews, questionnaires and journals. The chi-square techniques of data
analysis was employed in conjunction with percentage and tables.
Based on the analysis carried out, it was found that stock on
the Nigerian Stock Exchange were efficiently priced.
The findings reveal that the Nigerian Stock Exchange is faced
with a number of problems such as, the retention attitude of Nigerian investors
and also the problem of an
underdeveloped financial system and finally the oligopoly structure of the NSE
does not augur well for competition and development.
Recommendations made include the need for government to
pursue its current privatization process with more vigor, and that there should
be a significant lowering of corporate tax rates on publicly quoted companies,
which increase public confidence in the Stock Market, to mention but a
few.
TABLE OF CONTENTS
CHAPTER ONE
INTRODUCTION
1.1 General
Overview
1.2 Statement of
the Problems
1.3 Scope of the
Study
1.4 Significance
of the Study
1.5 Objectives of
the Study
1.6 Hypothesis
1.7 Research
Questions
1.8 Definition of
Terms
1.9 Plan of Study
CHAPTER TWO
LITERATURE REVIEW
2.1 Introduction
2.2 History of
the Nigerian Capital Market
2.3 Structure of the Nigeria Capital Market
2.3 Regulatory
Environment of the Nigerian Capital Market
2.4 Securities
and Exchange Commission
2.5 Functions of
the Nigerian Capital Market
2.6 Listing on
the Nigerian Stock Exchange
2.8 Summary
References
CHAPTER THREE
RESEARCH DESIGN / METHODOLOGY
3.1
Introduction
3.2 Research
Methods
3.3 Methods of
Data Collection
3.4 Techniques of
Data Analysis
3.5 Research Design
3.6 Justification
of the Methods and Techniques Used
3.7 Summary
CHAPTER FOUR
PRESENTATION AND ANALYSIS OF DATA
4.1 Introduction
4.2 Organization
and Operations of the Nigeria Stock Exchange
4.3 Methods of
Pricing Securities in the Nigerian Stock Exchange.
4.4 Pricing
Efficiency of The Nigerian Stock Exchange
4.4.1 Analysis Based
on Questionnaires
4.4.2 Analysis Based
on Profit Ability of Selected Companies
4.4.3 Share Prices
and Profit After Tax of Selected Quoted Companies
4.4.4 Test of
Hypothesis
4.5 Problems of
Nigerian Stock Exchange
4.6 Summary
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATION
5.1 Summary
Findings
5.2 Limitation of
the Study
5.3 Conclusion
5.4
Recommendations
Bibliography
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.
1.17 DEFINITION OF
TERMS
THE SECURITIES MARKET:
This refers to t
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