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An Investigation Into The Downward Trend In Global Stock Markets: A Case Study Of The Nigerian Stock Market

3975 words - 16 pages

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RESEARCH PROPOSAL

PROPOSED RESEARCH TITLE:
AN INVESTIGATION INTO THE DOWNWARD TREND IN GLOBAL STOCK MARKETS: A CASE STUDY OF THE NIGERIAN STOCK MARKET

RESEARCH BRIEF
The history of stock trading and trading associations can be traced as far back as the 11th century when Jewish and Muslim merchants set up trade associations. After centuries of evolution, stock markets have become the symbol of commerce in the modern world. It operates in various countries and trades a range of securities. The world stock market capitalisation is estimated to be about $ 36.6 Trillion. The stock market has various functions such as capital mobilisation, investing opportunities, risk ...view middle of the document...

6 Trillion, sending all the stake holders into panic.

STOCK MARKETS
A stock market is a place where stocks and securities can be exchanged or sold from one owner to another. It is a place where buyers and sellers of securities meet. The process of buying and selling is called trading.
Stock markets are divided into both primary and secondary markets. The primary market deals with the listing of new companies on the exchange, these companies usually want to raise finance. The secondary market deals with buying and selling existing securities. It accounts for the majority of the transactions that take place in the stock market.
There are various participants in stock markets. There are investors, brokers and market makers. The investors can be individuals or institutional bodies that trade either on their own behalf or on behalf of other investors. Broker’s act as agents who try to carry out trades on behalf of their clients at the best possible price, the brokers also offer investment advice and research services. The market maker is a dealer that quotes both buy and sell prices of securities on a continual basis, if it is unable to find counterparties for a buy or sell order; they have to be prepared to take an open position.
The stock market reflects and magnifies all economic flaws. When the economy looks good, the stock market performs well and when the economy goes bad, the stock market reflects it as well.

MARKET CRASH
A market crash is a large and sudden drop in asset prices. Market crashes are usually accompanied by large selling pressures in the market. The drop in asset prices occurs really quickly while the recovery is a slow process.

FINANCIAL CRISIS
A financial crisis is a disruption to financial markets which hinders the market’s capacity to allocate capital. According to Portes and Vines (1997) all crisis are “crisis of success” because initially the capital inflow into the market is a sign of economic promise and success but this inflow is usually unsustainable.

FINANCIAL CRISIS IN EMERGING MARKETS
When there is a financial crisis in an emerging market such as Nigeria. It results in a series of chaos. An economy which has benefited from large capital inflows stops receiving such inflows and faces a sudden reversal of capital flow. Financial crisis in emerging markets are usually accompanied by difficulties of the concerned party to honour its contractual responsibilities to foreign investors. The anticipation of such difficulties could set off disorderly actions if investors rush to take out their investment from the crisis country.

EFFICIENCY OF FINANCIAL MARKETS
The efficiency of a market could be looked at from a variety of view points. It could be an allocative, operational or informational efficiency. Allocative efficiency has to do with how well a market allocates scarce capital resources amongst competitors in order for them to be used most productively. In an ideal situation capital would be...

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