Roubini (2009) blamed the political leaders who facilitated the global economic crisis, surrendering to the “logic†of the unregulated market place and stated that United States had broken from a fiscal stand point. The trillions of dollars in excess expenditures as planned by the policy makers would inevitably require massive borrowing from foreign countries who themselves are in need of their own stimulus deficit spending. The only way the US will be able to attract foreign credit in this context is through much higher interest rates. This will kill private borrowing, stifling investment ultimately defeating the purpose of the stimulus spending. The other alternative is to simply print the money, and produce the inflationary hell that now exists in Nigeria.
Frankel, Schmukler and Serven (2001) argued that after the crisis of 1990s economist have become in favour of corner exchange rate regimes, according to which countries will either firmly fix their exchange rate or follow a flexible regime without pre-commitments.
As was rightly put by Davies (2005) “The combined performance of Africa equity markets, over the last five underdeveloped and undercapitalized. The markets low liquidity levels restrict international institution investors. Most invested capitals originate from capital African investors.
The last panel to work on the Nigerian capital market was the 1996 panel on the review of the Nigerian capital Market (Odife Panel). The panel, like the other three before it, recommended the establishment of more stock exchanges in addition to the Nigerian Stock Exchange. “In direct response to the threat of monopoly†Odife (2000:51), the Odife panel recommended a multi-exchange format to engender competition and more rapid development. It went further to recommend a new national stock exchange with on-line trading facilities, giving simultaneous and equal assess to trading to all Nigerians.
Essentially, the level of national economic development and the extent to which most economic activities can effectively rely on the safety of the capital market are major indicators of a healthy balance between a sound financial system and macro-economic stability (NEEDS, 2003). It is in the light of these assumptions that the capital market performs several roles and functions.
Poor investment education has a major part to play in this behavior. However, the situation remains a circular one; investors are not parting with their stockholding because of their philosophy of buy for keeps’. This results in few stocks in the market float and agencies shallowness in the market (Osaze, 1985). Besides, with so few securities in the markets, investors find it difficult to replenish their portfolios if they sell, since few are parting with their holdings (Alile and Anao 1986). Hence, those lucky enough to buy proceed to hold and further exacerbate market shallowness.
Relative strength analysis; Levy (1986) suggests that some individuals stock or group of stock have relative strengths, that is their prices consistently rise in a bull market relatively faster than other stocks and also fall faster in a bear market, hence their high risks. These stocks can be identified by their high rates of return or by their higher prices relative to the industry’s market average. When identified, possible profits can be earned from relative strength ranking of stocks.
E.g Dangote stock can affect stock grantely
Price-Trading Volume Analysis – It was Young (1966) who first argued that it takes volumes to really move the price of a stock because volume is a measure of the intensity of investors’ emotions. However, Osaze’s (1986) research found this not to be strictly true in the Nigerian market.
Duwole (2009) said: A number of Nigerian based banks are current at reducing the effects of the economic meltdown on their business outlay, to avoid another round of merger or winding up in the event of an unforetold bad economic climate.
Among the painful but “necessary†measures taking effects this month, are salary reductions, by about 20 percent across board, the abolition of some staff cadre to reduce staff strength and staff transfers to their acquire sick banks to prevent new employment.
2.4 Inflation/Crude oil prices
Inflation has received considerable attention and has been widely studied by economists in developed as well as developing economies. Theoretically, two main schools of thought attempt to explain the inflation process. These are the monetary phenomenon; the latter opines that inflation results mainly from government fiscal operation and from the gap between potential output and aggregate demand. Most empirical studies have followed this dichotomization with slight modifications in providing empirical evidence for inflation in various countries.
Despite the apparent continuity in objectives, Nigerian inflation has received considerable attention and has been widely studied by economists for developed as well as developing economies. Theoretically, two main schools of thought attempt to explain the inflation process. These are the monetary and the structuralism schools. While the former hold that inflation is a purely monetary phenomenon, the latter opines that inflation results mainly from government fiscal operations and from the gap between potential output and aggregates demand. Most empirical studies have followed the dichotomization with slight modifications in providing empirical evidence for inflation in various countries.
Oyejide (1972) study constitutes a pioneering attempt at providing an explanation of the cause of inflation in Nigeria, most especially from the structuralism perspective. Specifically, he examined the impact of deficit financing in propagating strong direct relationship between inflation and the various measures of deficit financing that were in use between 1957 and 1970. In a commissioned study for the productivity, prices and income board of Nigeria, Ajayi and Awosika (1980) found that inflation in Nigeria is explained more by external factors, most especially the fortunes of the international oil market and to a limited extent by internal influences.
An important conference on the Nigerian inflation process was organized by the Nigerian Institute of Social and Economic Research (NISER) in Ibadan in 1974. In general, the findings of some of the key articles suggested that neither monetary nor structural phenomena alone explained Nigeria’s inflation. One striking conclusion from this conference was that combination of both factors precipitates the inflation process (Onitiri and Awosika, 1982).
Adeyeye and Fakiyesi (1980) estimated and tested the hypothesis that the main factor responsible for instability of prices and inflationary tendencies in Nigeria was government expenditure. Working with annual time series data spanning 1960–1977, they tested the hypothesis that the rate of inflation in Nigeria is linearly related to the rate of growth of money stock, government expenditure, especially deficit, and growth of government revenue, especially monetization of foreign exchange from oil export. The result established some significant positive relationship between inflation rate and growth in bank credit, growth of money supply and growth in government expenditure, while the relationship with growth of government revenue was uncertain.
