AN ECONOMETRIC ANALYSIS OF MONETARY POLICY AND STOCK PRICES IN NIGERIA: 1986-2008

REVIEW JOURNAL

TITLE :           AN ECONOMETRIC ANALYSIS OF MONETARY POLICY AND STOCK PRICES IN NIGERIA: 1986-2008

WRITER :       Ajie H. A. and Nenbee, S. G.

A.    The background and research purposes

The financial market is an organized institution that is created for the sale and purchases of funds. It consists of the money and capital markets. Money market is that which deals in short-term securities. On the other hand, capital markets are that part which specializes in the mobilization of long-term funds for the purpose of rapid economic growth and development (Ajie, 2006). A capital market comprises of a primary and secondary markets. A primary market is a market for new issues of securities.

But the secondary market consists of exchanges and over-the-counter market where securities are bought and sold for their issuance in the primary market. Trading on the Nigerian capital market is coordinated by the Nigerian Stock Exchange (NSC), (Nwankwo, 1991; Gbosi, 2002:7 and Odoko et al, 2004). On a general note writes Al Faki (2005), the capital market is very vital to the growth; development and strength of any country.

B.     Method

The stock prices data was obtained from the Nigerian Stock Exchange Commission (SEC) – briefs and capital bulletin. It was used as the dependent variable. Money Supply (M2) is defined as currency outside banks plus demand deposits. The data was sourced from the Central Bank of Nigeria (CBN) Statistical Bulletin(various issues). Interest Rates were employed in its strict economic sense as the cost of borrowing money. The rate used was the prime lending rate. The data was obtained from the CBN too.

C.     The results of research and discussions

This phenomenal increment can be attributed to deregulation of  the financial sector. As noted by Gbosi (2002), financial sector liberalization (that is to say, deregulation) was undertaken in order to promote the use of market-based instruments of monetary control for improved financial sector efficiency. Furthermore, between 1992 and 1998, it rose from N53115.2million to about N207061.8million. Following the advent of democracy, its figures increased sharply from N306654.9million in 1999 to as high as N2695342.1million in 2008.

D.    Conclusion

This strategy is well suited for a variety of investors because they can choose the level of risk that is best suited for their confront level. Three models are available for this purpose:

(a) Conservative: Designed for lower risk with a heavier concentration in bonds or equity income funds.

(b) Moderate: Designed for medium risk with a balance between different types of stock and bond funds.

(c) Aggressive: Designed for higher risk with a heavier concentration of stock or growth funds (O' Neill Wyss, 2001).

In sum, the EMT simply dwells on the availability of information to investors on the stock market. The FMA centres on fundamental factors like leverage, value of bonds, earnings per share and more.