ABSTRACT
This research work was conducted to ascertain the effect of share price volatility on the economic growth of Nigeria. The research used series of test such as the unit root test that was used to test for stationarity, the co-integration test was used to check for the long run and short run relationship between the variables, and the error correction model that estimate the speed at which a dependent variable returns to equilibrium after a change in other variables. The augmented ADF test of stationarity shows that all the variables are not stationary at levels but are stationary at first difference at the 0.05 level of significance, The long run equation reveals that all the variables in the model met a priori expectation in the long run, The all share price index growth rate shows a direct relationship with economic growth in Nigeria but is statistically insignificant as shown by its high standard error. A unit increase in the all share price index would lead to a 0.41 units increase in the gross domestic product. The vector error correction model shows the short run relationship that exists among the variables in the model, the all share index also has a direct relationship with the gross domestic product in the short run. A unit increase in the all share index would lead to a 0.72 units increase in the gross domestic product but is also statistically insignificant. The study therefore recommends among other things that In order to make the stock market more stable and reduce the variances of its performance, the manpower and processes of the Securities and Exchange Commission (SEC) should be further strengthened. This should enable the organization improve on its oversight function of the capital market and engender improvement its performance.
CHAPTER ONE INTRODUCTION
1.1 Background to the Study
The origins of the Nigerian Capital Market date back to colonial times when the British Government ruling Nigeria at the time sought funds for running the local administration. Most these funds derived from agriculture, produce marketing and solid mineral mining. Discovering that these sources were inadequate to meet its growing financial obligations, the colonial administration decided to expand its revenue base by reforming the system of revenue mobilization, taxation and other payments. It also saw the need to raise funds from public sector to cover temporary shortfalls in funds availability. Hence, it found it necessary to establish a financial system by setting up the basic infrastructure for its take off pending the development of an organized private sector.
According to Odife (2000), the first step in this direction was to secure the necessary finance for the development of this infrastructure and long-term capital project. This it did in 1946 when it promulgated the 1946 10-year plan Local Loan Ordinance for the floatation of the first N300,000, 3% Government stock 1956/61 with its management vested on the Accountant-General. In 1957, the government and Other Securities (Local Trustees Powers) Acts was enacted. This law specified the types of securities in which trust funds may be invested. It also clearly defined the powers and responsibilities of trustees. In addition, the colonial government set up the Professor Barback committee to examine the ways and means of fostering a share market in Nigeria. Part of the terms of reference of this committee included the possibility of establishing a capital market in Nigeria. The committee recommended, among others, the creation of facilities for dealing in shares , the establishment of rules regulating share transfer and measures for encouraging savings and issues of securities of government and other organizations.By the end of the year (1957), the colonial administration had promulgated the General Loan and Stock Act and the Local Loan (Registered Stock and Securities) Act on the recommendations of the Barback Committee. In 1958, the Central Bank of Nigerian was established through the Central Bank of Nigeria Act of 1958.
The purpose of these various legislations was to establish the legal and infrastructural frame work for the take off of a viable securities/capital market in Nigeria. As a follow up to these laws, the colonial administration issued the first N2 million Federation of Nigeria Development Loan Stock in May 1959. In 1959, it also enacted the Statutory Corporations (Guarantee of Loans) Act. In April 1960, the Central Bank of Nigeria issued the first Nigerian Treasury Bills which were meant to provide an avenue for the investment of short-term liquid funds in Nigeria and assist in providing government with funds pending receipt of its own revenues. On September 15, 1960, the Lagos Stock Exchange was incorporated as a private limited liability company, limited by guarantee under the provisions of the Lagos Stock Exchange Act 1960. The Lagos Stock Exchange Act 1960 conferred monopoly powers on it members to deal in securities granted quotation on the Exchange. It also allowed the Central Bank to Deal directly in securities. On June 5, 1961, the Lagos Stock Exchange opened for business with 19 listed securities made up of 3 equities, 6 Federal Government Bonds and 10 industrial loans. In 1961, “the National Provident Fund was established as a compulsory contributory savings scheme aimed at providing some protection to contributors at old age, invalidity or temporary loss of employment”. The enabling Act required the Fund to invest its surplus funds only in securities in Nigeria authorized by the Trustee Investment Acts of 1957 and 1962 and restricted to securities created or issued by or on behalf of the government of the federation (SEC, 1999:49). By 1962, the Exchange Control Act and Trustees Investment Act were enacted. The Capital Issues Committee was also constituted to examine and recommend the establishment of an apex monitoring institution for the growing Nigerian Capital Market. In 1966, the Borrowings by public Bodies Act was enacted. This was followed in 1968 by the Companies Decree and the Banking Decree in 1969. In 1972, the Nigerian Enterprises Promotion Decree was promulgated which was followed in 1963 by the Capital Issues Commission Decree. The Capital Issue Committee thus became the apex regulatory body for the Nigeria Capital Market. By this decree, it was empowered to determine the price and timing of new issues of securities through offer for sale or for subscription.
In 1977, the name of the Lagos Stock Exchange was changed to the Nigerian Stock Exchange by the Indigenization Decree of 1977 followed the recommendations of the Industrial Enterprises Panel (Adeosun Panel) of 1975 that branch exchanges should be established. As a result, six new trading floors of the Nigerian Stock Exchange were created in Kaduna (1978), Port Harcourt (1980), Kano (1989), Onitsha (1990) and Yola (2002). On April 1, 1978, the Securities and Exchange Decree was promulgated to replace the Capital Issues Commission and expand the scope of its activities following the recommendations of the Financial System Review Committee (Okigbo Committee) of 1976. The Committee also recommended the establishment of multiple exchanges and the approval of share allotments by the Securities and Exchange Commission. In 1978, the first state government revenue bond was floated by the defunct Bendel State of Nigeria. The N20 million 7% first Bendel State Loan was floated to finance the state’s housing development programme. On April 5, 1985, the Second-tier Securities Market (SSM) of the Nigerian Stock Exchange was established to cater for the requirements of small and medium scale enterprise. It essentially diluted the listing requirements of this category of companies to encourage them to seek quotation and thereby further broaden and deepen the market. In 1987, the Nigerian Enterprises Promotion Decree 34 (Issue of non-voting equity shares) was promulgated permitting public companies quoted on the Nigerian Stock Exchange to issue through the Exchange, non-voting paid-up shares for the subscription of persons whether citizens of Nigeria or not and whether resident in Nigeria.
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