A SHARE PRICE VOLATILITY,CAPITAL MARKET RETURNS AND NIGERIA ECONOMY

Price Volatility


1.0 Introduction

Conceptually, equity market volatility measures the degree of variation of the current equity price from its average past values, which is synonymous with risk level of the market. The risk amplitude is represented by the extent of dispersion of returns around the mean. The greater the dispersion of returns around the mean, the larger the drops in the compound return. Generally, equity market volatility brings to picture the magnitude of rising and falling of equity prices. Thus, the relationship between volatility and equity market performance cannot be overemphasized. The performance of equity market, in terms of returns, gets better as volatility tends to decline; and plummets as volatility tends to rise. Price Volatility

In most economies, effective equity market remains a critical segment of financial markets due to its role in mobilizing long term investible funds for productive investment. Literatures on the link between equity market and economic development abound (see Olofin and Afangideh, 2008; Ezeoha, Ogamba and Onyiuke, 2009 and Ogunmuyiwa, 2010). More so, empirical evidence suggests that movements in equity prices are fundamental in explaining aggregate investment behavior (see Barro, 1990). The effectiveness and efficiency of equity market could be measured by the volatility of equity market returns. The Nigerian stock exchange (NGSE30) which tracks price movements of 30 most liquid equities listed on its mainboard averaged 30,677 points between 2005 and 2013. It peaked in March 2008 with 65,607 points and recorded the lowest in March 2009 with 19,886 points. Price Volatility

This movement depicts some level of variability in equity prices. Just like other countries of the world, the volatility of equity prices in Nigeria could be attributed to endogenous and exogenous factors. In fully integrated economies, persistent volatility is usually as a result of exogenous factors, while segmented or relatively closed economies markets are mainly influenced by endogenous factor such as tax and interest rate policy, inflation, etc. Since the deregulation of the Nigerian economy in 1986 and the subsequent liberalization of the capital market, the domestic markets have been greatly linked with the rest of the world markets. Overtime, more than 70 per cent of capital importations are into equity portfolio investment in Nigeria and record shows that between March 2012 and September 2013, capital importation from Kenya, South Africa, China, United States and Germany constitute an average of 72.02 per cent of the total. In fact, foreign portfolio investment from China alone shot up the value of equity securities from negative position of NGN162.8 billion in 2005 to NGN323.6 billion in 2010 (CBN, 2009), thereby creating a new dimension to volatility in the domestic market. Thus, the volatility of equity markets of these countries vis-à-vis that of Nigeria is worthy of examination as variations in these markets could have significant impact on the Nigeria stock market. Price Volatility