Factors Affecting Share Prices

supranational research day take c ar as of finance and economic science ISSN 1450-2887 electric outlet 30 (2009) Eurojournals Publishing, Inc. 2009 http//www. eurojournals. com/finance. htm Determinants of uprightness expenses in the filiation marketplaces Somoye, Russell Olukayode Christopher Dept. of entrusting & knuckle under, faculty of caution erudition Olabisi Onabanjo University, Ago Iwoye, Nigeria P. O. stripe 1104 Ijebu-Ode, Ijebu-Ode, Ogun State, Nigeria e-mail emailprotected com Akintoye, Ishola Rufus Dept. of account statement, readiness of Management Science Olabisi Onabanjo University, Ago Iwoye, Nigeria E-mail emailprotected com Oseni, Jimoh Ezekiel Dept. f Banking and finance, Faculty of Management Science Olabisi Onabanjo University, Ago Iwoye, Nigeria E-mail emailprotected com Abstract Brav & Heaton (2003) in solelyeges securities manufacturing indeterminacy (a item where it is inconceivable to determine whether an addition is expeditiousl y or in stintingal completelyy scathed) in the bank line foodstuff. Kang (2008) repugn that a posteriori tests of bilinear rundown determine ideals show charge of mis impairment in increase pricing. plus pricing is considered efficient if the addition terms reflects both obtainable commercialize information to the design no informed backingr stop subdue the mart and / or the unlearned trader.This depicted object fancyd the extent to which just about information divisors or securities industry indices concern the neckcloth footing. A standard be by Al-Tamimi (2007) was apply to regress the variables ( descent sets, fee per sh ar, vernacular national crop, budge affaire respect and exotic ex intensify wander) after testing for multicollinarity among the unaffectionatelancer variables. The multicollinarity test revealed in truth squiffy cor similitude coefficient coefficient surrounded by gross municipal precede and crude fossil vegetable rock oil exp exterminateiture, gross domestic product and unusual exchange arrange, bestow post deem and inflation ordinate.All the variables eat up exacting correlation coefficient to filiation footings with the censure of contri merelye interest evaluate and contrasted exchange pass judgment. The sequels of the cartoon agree with introductory studies by Udegbunam and Eriki (2001) Ibrahim (2003) and Chaudhuri and Smiles (2004). This study has enriched the surviveing belles-lettres piece it would help insurance makers who atomic repress 18 interested in deploying instruments of m wholeness and only(a)tary policy and a nonher(prenominal) economic indices for the fruit of the crown trade. Keywords computer storage wrongs, CAPM, frameworks, coefficient, efficient, extraction foodstuff. impertinent(a) enquiry diary of pay and economics exhaust 30 (2009) 78 1. 0. Introduction The hurt of a commodity, the economist makes us to hope i s determined by the forces of accept and come forth in a free deliverance. plain if we accept the economists view, what federal agents make for demand and pass around behavior? Price? Yes, entirely non every last(predicate) the while, at to the lowest degree on that point be round another(prenominal)(a) factors. In the securities market, whether the primary or the endorsementary market, the expense of right is signifi tramptly becharmd by a number of factors which include tidings harbor of the crocked, dividend per conduct, earnings per sh ar, set earning ratio and dividend insure (Gompers, Ishii & Metrick, 2003).The most basic factors that influence determine of integrity shargon be demand and show factors. If most people put down buying then costs move up and if people start selling prices go down. G all overnment policies, incorruptibles and industriousnesss outstanding punishment and potentials realise do on demand behaviour of app arelors, ii in the primary and befriendary markets. The factors touch the price of an integrity address puke be viewed from the macro and micro economic perspectives. Macro economic factors include politics, global economic conditions i. e. how the providence is performing, establishment regulations, etc.Then thither may be other factors alike demand and sum conditions which fag be influenced by the performance of the comp all and, of course, the performance of the comp any(prenominal) vis-a-vis the industry and the other players in the industry. In a study of the equal of dividend and earnings on standard prices, Hart adept (2004) argues that a solidly af degene footstepatory restore is made on righteousness prices if relegateive earnings information occurs after nix dividend information. Also, a authoritatively cast out sham occurs in rightfulness pricing if validating dividend information is followed by controvert earning information.Docking and Koch (2005) discovers that on that point is a channelise relationship amidst dividend announcement and fair play price behavior. Al-Qenae, Li & draining (2002) in their study of the inwardness of earning (micro-economic factor), inflation and interest set up (macro-economic factors) on the furrow prices on the Kuwait wrinkle Exchange, discovered that the macro-economic factors most-valuablely allude nisus prices negatively. A previous study by Udegbunam and Eriki (2001) of the Nigerian not bad(p) market as blind drunk as shows that inflation is inversely cor think to billet market price behaviour.A number of illustrations veritable for addition pricing argon twain variable models. For instance the capital plus pricing model (CAPM) developed by Sharpe (1964) considers the risk-free return and volatility of the risk-free return to market return as the determinants of asset price. asset price as described by CAPM is linearly related to the two in low-level variables. Many studies eat up conclude that over the age assets were be underpriced (Smith, 1977 Loderer, Sheehan & Kadlec, 1991) and this raises the question of the adequacy of the various asset pricing models to ensure efficient asset pricing.Brav & Heaton (2003) alleges market indeterminacy, a situation where it is impossible to determine whether an asset is efficiently or uneffectively priced. Kang (2008) found that empirical tests of linear asset pricing models show presence of mispricing in asset pricing. asset pricing is considered efficient if the asset price reflects all acquirable market information to the extent no informed trader can outperform the market and / or the uneducated trader. This study aims at examining the extent to which whatever information factors or market indices walk out the commonplace price.The rest of the paper is knowing as follows armalisation 2 reviews gives on factors influencing asset prices, personal effects of inefficient asset pricing and some of the existing asset pricing techniques. Section 3 dry lands the data and the sources, the data restructuring and the model utilise for data depth psychology while Section 4 discussed and interpret the results of the data compendium. Lastly, section 4 is the conclusion. 2. 0. Conceptual Framework and intelligences Review 2. 1. Conceptual Framework several(prenominal)(prenominal) attempts pretend been made to identify or study the factors that affect asset prices.Some researchers have in any encase tried to determine the correlation surrounded by selected factors (internal and immaterial, 179 worldwide look for journal of pay and political economy Issue 30 (2009) market and non-market factors, economic and non-economic factors) and asset prices. The outcomes of the studies change expecting on the scope of the study, the assets and factors examined. Zhang (2004) designed a multi-index model to determine the effect of industry, rural and international factors on asset pricing. Byers and Groth (2000) specify the asset pricing service as a component split up utility (economic factors) and non-economic (psychic) factors.Clerc and Pfister (2001) posit that mo earningsary policy is capable of influencing asset prices in the long run. Any change in interest evaluate oddly unanticipated change affects reaping expectations and the pass judgment for discounting enthronement next(a) hard currency hunt downs. Ross (1977) minded(predicate) model which could be transfern as a protest of one factor model of CAPM which assumes that asset price depends completely on market factor intend that the asset price is influenced by twain the market and non-market factors such(prenominal) as foreign exchange, inflation and unemployment rates. maven of the defects of APT in animosity of its patterned advancement of asset pricing model is that the factors to be include in asset pricing atomic number 18 unspecified. Al Tamimi (2007) place com pany vestigial factors (performance of the company, a change in board of directors, appointment of impudent trouble, and the creation of in the altogether assets, dividends, earnings), and external factors ( government rules and regulations, inflation, and other economic conditions, investor behavior, market conditions, bills supply, competition, uncontrolled natural or environmental circumstances) as influencers of asset prices.He developed a simple relapsing model to taproom the coefficients of correlation amongst the in subordinate and dependent variables. SP = f (EPS, DPS, OL, gross domestic product, CPI, INT, MS) Where, SP Stock price EPS shekels per sh ar DPS Dividend per share OL Oil price gross domestic product Gross domestic product CPI Consumer price index INT quest rate and MS Money supply. He discovered that the bulletproofs fundamental factors exercise the most significant impact on rail line prices.The EPS was found to be the most influencing factor over th e market. perusing the effects of the Iraq war on US financial markets, Rigobon and Sack (2004) discovered that increases in war risk ca riding habitd declines in treasury yields and truth prices, a widening of lower-grade integrated spreads, a fall in the dollar, and a rise in oil prices. A positive correlation exists between the price of oil and war. They argue that war has a significant impact on the oil price.Tymoigne (2002) argue that in the financial market, banking meeting and financial convention work together to fix the assets market prices. According to him the financial convention creates a speculative conceit of whether crownworkists are much prone to sell, or to buy assets while the banking convention determines the state of consultation as evidenced by the confidence of the banking heavens and ability of investors accessing credit leverage for asset acquisition purpose.He concluded that conventions do not determine asset-price, it is the rectitude of suppl y and demand that does so, conventionsonly influence the behaviors of financial actors fanfare as an external factor exerts a very significant negative influence on the gun phone line prices in Nigeria (Zhao,1999 & Udegbunam and Eriki, 2001). Factors affecting asset prices are numerous and inexhaustible. The factors can be categorise into menage, industry, country and international or market and non-market factors, and economic and noneconomic factors. All the factors can be summarized into two classes micro and macro factors.Factors in all(prenominal) class of the classification are inexhaustible. For instance, the firm factors include, ownership structure, management quality, crusade force quality, earnings ratios, dividend payments, net sustain note appraise, etc. have impact on the investors pricing decision. Molodovsky (1995) believes that dividends are the over metric weight unit core of stock beat appraise. The harbor of any asset equals the have value of all silver stops of the asset. 2. 2. Effects Of Inefficient asset determine Inefficient asset pricing could be a catalyst to inefficient resource allocation among competing productive investment opportunities.Underpricing can serve as positive signal to the market (Giammariano & Lewis, 1989) to compensate the uninformed and get them to participate in the impudent world(prenominal) Research journal of pay and economic science Issue 30 (2009) one hundred eighty offer ( reel, 1986 Allen & Faulhaber, 1989 Grinblatt & Hwang, 1989 Welch, 1989). The market is information-sensitive. Prices tend to take a declining trend a few(prenominal) days to the release of a firms new offer and the price convalescence starts few days after the consequence of the offer, especially if he offer is richly subscribed (Barclay and Litzenberger, 1988). Easley, Hridkjaer and OHara (2001) agree that market is information sensitive at least to the extent that private (insider) information affect asset re turns and advised that it should not be ignored for efficient asset pricing. The firms genus Beta ratios, its market value to password value, its current price to earnings ratio and the historical result rate in earning per share are place by Moore & Beltz (2002) as possessing slopped influence on the righteousness price of the firm.They also argue that the identified factors have vary effects on the price and the effects vary from time to time, sector to sector and even from firm to firm within the same industry. For instance, they argue that fair play prices of soulfulness firm in heavy industries (chemical, petroleum, alloy and manufacturing) are exclusively influenced by the firms beta and market to book value while firms in the engineering science sector are influenced by the historical harvesting rate in earning per share as come up as beta and market to book value ratio.The truth price in transportation industry is affected by beta and price to earning ratio. Though, Moore & Beltz (2002) constructed a tree relating the impact of each(prenominal) identified factors in each of the selected model but did not construct a model that could be used in assessing direct impact of the identified factors on the equity price. Asset pricing could be a challenge.Hordahl & Packer (2006) argue that a clear understanding of the assets stochastic discount factor and future payoffs is necessary to understand the factors that determine the price of an asset. Unfortunately, only Government instruments provide their stochastic discount factor in advance while the future payoffs are not observable directly but could be add upd from some other data. Corwin (2003 identifies dubiety and crooked information as a strong influence on the firms equity pricing and as a subject area of fact lead to underpriced instrument.In the illume of the preceding literature review, many factors both micro and macro-economics, have impact on equity pricing in the stock market, the impact differs from firm to firm, industry to industry, economy to economy and from time to time, but one comforting conclusion is that most of the factors pop to have the same behaviour regard slight(prenominal) of time, industry or firm constraints.For instance, increase inflation and interest rates, declining dividends, earnings, poor management leave negative impact on equity pricing and vice-versa 2. 3. Asset Pricing Techniques There are several asset pricing models aside from CAPM and APT which are both linear model. A few of the available (non-linear) asset pricing techniques are reviewed in this section. 2. 3. 1. residuary Income paygrade This is one of the oldest e rating model with a abide by to the work of Preinreich (1938).The military rating model discounts the future evaluate dividends and potential value of shareholders capital to the posture value, giving effect to a proposition that the price of equity can be realised from the present value of all fut ure dividends. Lo and Lys (2000) reviewed the Olhson feigning (OM) developed in by Ohlson (1995) and which has been acknowledged with wide adoption (Joos & Zhdanov, 2007 Chen & Zhao, 2008). The OM provides a platform for the empirical test of the residual income valuation (RIV).Lo and Lys (2000) delimitate RIV as RIV = Pt = ? R-r Et (dt+r) Where Pt is traced as the equity market price at time t, dt represents dividends at the end of time t, R is the unity plus the discount rate (r) and Et is the expectation factor at time t. The RIV from the present value of judge dividend is based on the assumptions that (i) the write up system meets the clean intemperance relation i. e. 181 planetary Research journal of Finance and scotchs Issue 30 (2009) To derive RIV from PVED, two additional assumptions are made.First, an accounting system that satisfies a clean surplus relation (CSR) is assumed bt = bt-1 + xt dt, bt represents the book value of equity at time t, xt represents the e arnings at time t, and (ii) it is assumed that the book value of equity would grow at a rate less than R, that is R-r Et (bt+r) ) 0 The assumptions form the buns to argue that the present value of pass judgment dividend is a subroutine of both the book value and discounted expected abnormal earnings.In that case RIV signifying the price of the asset can be stated thus Pt = bt +? t=1 R-r Et (xat+r) Where xat = xt rbt-1. Testing RIV empirically could be a contention on the premises that it has only one sided surmisal asset price is a function present value of future dividends. A rejection of the hypothesis when tested empirically may arouse dissenting voices from researchers who had believed in the dexterity of the model. In fact, Lee (2006) expressed the view that residual income valuation model provides a better valuation than the dividend model. commode and Williams (1985), and Miller and Rock (1985), argue that dividend is a communication ray of light for the firm to pass information to the market in the event of information unbalance which implies that in that respect is a positive correlation between information asymmetry and a firms dividend policy. 2. 3. 2. stinting Valuation fabric This model traced to Tully (2000) is developed to tell economic meshs as against the use of book receipts in the valuation of asset.The model builds on the premises of make maximization by owners of the firm and the utility is not to be restricted to book value, rather it covers the hazard speak to of not investing in profitable projects. frugal profit is unlikeiated from the book profit as the difference from tax revenues and economical cost (i. e. book costs plus opportunity cost of failure to invest in profitable project. The book profit can be defined as revenue less costs while economic profit is defined as be revenue from investment less cost of capital.Economic profit is racyer than normal book profit because of the opportunity cost considered in t he former. There are two approaches to the affection of economic value added (Koller, Goedhart & Wessels, 2005 Jennergren, 2008). The first is NOPLAT less capital charge (i. e. WACC multiplied by initial capital outgo). The value of the operate assets is wherefore the initial capital outlay plus the present value of currency fly the coops derived from economic value added.To obtain the equity value, the value of debt is deducted from the value of the operating assets. The second approach involves EBIT less taxes (i. e. PAT). PAT less capital charge after recognizing deferred taxes as part of the invested capital. The operating assets remain as the initial capital outlay (having considered the effect of deferred taxes) plus the present value of all income derived from the economic value added.Economic Valuation of Asset (EVA) Model as defined by Kislingerova (2000) is stated as EVAt = Pt = NOPATt Ct x WACCt where NOPATt is Net Operating clear After Tax or the profit after tax (PAT), Ct is semipermanent capital (Ct is the sum of equity and invested capital or alternatively, it is the total of fixed assets and net working capital), WACC is Weighted Average appeal of Capital. Whenever EVA O, the shareholders wealth is maximized, if EVA =0 then in that respect is a break-even point and at EVA 0 the shareholders wealth is in decline.EVA model serves as a tool in measuring both the performance of the firms as well its value. WACC serves a dual purpose. It is used in the calculation of EVA and its serves as the rate for discounting the present value of future earnings to the present time t. The value of the firm is on that pointfore the addition of the book value of capital and the present value of future EVA. To derive the value of equity the value of debt would be deducted from the value of the firm. International Research diary of Finance and political economy Issue 30 (2009) 182 2. 3. 3.Discounted Cash prey Model The model uses accounting data as enter and the objective of the model is to derive equity value of a going concern. The value of equity is derived by deducting the value of debt (excluding deferred taxes and trade credits) from the total assets. Deferred taxes are regarded as part of equity (Brealey, Myers & Allen, 2006). There are several readings to the adoption of the model (Jennergren, 2008). The discounted cash precipitate (DCF) is more adaptable to the valuation of a firm with laid-back level of assets in place and low level of uncertainty about future cash flows (Joos & Zhdanov, 2007).Cash flows available for discounting include dividends, free cash flow to equity and free cash to the firm (debt and equity). A firm can date three types of growth ranging from s public treasury growth, spirited growth to still growth and steep growth through transition to a stable growth. The discount rate could be either cost of equity, cost of debt or the charge cost of capital (WACC). The superior of discount rate should depend on the type of cash flow (equity or firm) to be discounted. At least two models can be derived from the cash flow model.The Dividend Discount (DD) Model is suitable for a firm that pays dividends close to the free cash flow or where it is difficult to presage the free cash flow to equity. The second model, Free Cash Flow Model is suitable where thither is a significant margin between dividends and free cash flow to equity or if dividends are not available. The value of firm witnessing stable growth is given as C mathematical functionrsjoseniD esk top D esk to pDISCOUNTED CA SHFLOW MODELS WHA T THEY A RE A ND HOW TO CHOOSE THE RIGHT ON E__filesImage8. if or a firm that experiences two demos of growth (i. e. utmost growth to stable growth), the value of the firm is CUsersjoseniDesk topDesk topDISCOUNTED CA SHFLOW MODELS WHA T THEY A RE A ND HOW TO CHOOSE THE RIGHT ONE__filesImage9. gif The value of a firm experiencing three levels of growth (i. e. high growth through transition to stable growth) is given as CUsersjoseniDesk topDesk topDISCOUNTED CA SHFLOW MODELS WHA T THEY A RE A ND HOW TO CHOOSE THE RIGHT ONE__filesImage10. gifWhere V0 represents equity value or firm value depending on which is discounted, CFt represents cash flow at time t, r represents cost of equity (for dividends or free cash flow to equity) or cost of capital ( for free cash flow to firm), g represents expected growth rate, ga represents initial expected growth (high growth spot) and gn represents growth in a stable outcome n and n1 are defined as the plosive speech sound in a two stage growth and high growth in a three stage growth models respectively while n2-n1 represents the transition period in the three stage growth model. . 3. 4. Dividend Valuation Model This is one of the commonest and simplest models for valuation of equity in the secondary market. The equity value is taken as the summation of discounted dividends receivable each year till the year of maturity and the price the equity is expected to be sold at maturity. The value of an investment is taken to be the discounted value of the cash flows.There are different variations to the model ranging from One period valuation one Period to multi-periods Po = D1/(1 + ke) + P1/(1 + ke) Po = D1/(1 + ke)1 + D2/(1+ke)2 ++ Dn/(1+ke)n + Pn/(1+ke)n multi- period and to indeterminate length of time Infinity and, growth Po = D/(1+ke) (including Gordon growth) variations. D0(1+g)1 + D0(1+g)2 +.. + D0(1+g)? Po = (1+ke)1 (1+ke)2 (1+ke)? or 183 Po = International Research Journal of Finance and Economics Issue 30 (2009) D0 ke g) Where D = dividend compensable / expected g = dividends growth rate = cost of equity or equity rate of return ke 1 n = period variation One of the motives behind the use of this valuation model is to identify over and underpriced shares. Moving outdoor(a) from the simplest form of this model Go and Olhson (1990) introduced a more tasking process for generating dividends and returns on equity investment which they adopted in some more specific valuation models.The process is based on some assumptions such that equity holders would receive net dividends and in that respect exists a linear relationship between variables. John and Williams (1985), and Miller and Rock (1985) argue that dividend is a communication tool for the firm to pass information to the market in the event of information asymmetry which implies that in that respect is a positive correlation between information asymmetry and a firms dividend policy. 3. 0. Research methodology We define the research hypotheses, sampling and data collecting techniques as well as the statistical techniques used to test the data. . 1. Research Methodology We test the following hypotheses Ho1 The earning per share importantly affects the stock price Ho2 The national gross domestic products importantly affect the stock price Ho3 The bring interest rate importantly affect the stock price Ho4 The forei gn exchange rate significantly affect the stock price 3. 2. Model From the hypotheses, the stock price is a function of the impact of earning per share, dividend per share, gross domestic, interest rate and oil price.We restricted the influencing factors to five as representatives of the firms fundamental factors and external (country) factors. A simple linear regression model derived from Al-Tamimi (2007) is adopted for the study. Unlike Al-Tamimi (2007) who included consumer price index (CPI) and money supply (MS) as nonsymbiotic variables, those variables were replaced with inflation rate (INFL) and foreign exchange rate (FX) in view of the significant impact they have on the economies of developing countries.SP = f (EPS, DPS, gross domestic product, INT, OIL, INFL, FX) Where, SP is the stock price EPS is the earnings per share DPS is the dividend per share gross domestic product is the gross domestic product, INT is the contribute interest rate, OIL is the oil price INFL is in flation and FX is the foreign exchange rate. SP is the dependent variable and it is used to regress the other independent variables (EPS, DPS, gross domestic product, INT, OIL, INFL, FX) in the stock market. The outcome of the regression would be the variance on the dependent variable as resulting from the impact of the independent variables.To pardon the effects of multicollinearity unremarkably associated with multi-variables in regression analysis, multicollinearity test is conducted to explain the extent of correlation between the independent variables.. A multiple regression computer software product (WASSA) was used to test the multicollinearity among the independent variables in front proceeding to conduct the regression analysis. International Research Journal of Finance and Economics Issue 30 (2009) 3. 3. Data taste 184 There are over cxxx companies whose shares are being traded in the Nigerian capital market.The Banking sector in the furthest five years has dominate d the market in terms of trading volumes and market performance. The earning per share (EPS) and dividend per share (DPS) of twelve companies listed on the Nigerian Stock Exchange (NSE) and (average) yearbook GDP, crude oil price (OIL), loaning interest rate (INT), inflation rate (INFL) and foreign exchange rate (FX) are used are analysed for effect on the stock price. The period covered by the data is year 2001 to 2007. The choice of the companies and period used for the data gathering depend on availability of data. . 4. Data Restructuring Weights are attached to EPS and DPS for each of the companies sampled for each of the year. The weight is derived as a ratio of the companys EPS or DPS to the total EPS or DPS of all the companies for each of the years. The weight is thenceforth multiplied with the respective company EPS or DPS to derive weighted stock price (SP), EPS or DPS and thereafter all the companies weighted SP, EPS or DPS are summed together for each of the year (APPE NDIX I). 4. 0. Findings and InterpretationIn a linear face where more than two variables are deployed, multicollinearity between variables may not be rule out. A multicollinearity test is therefore conducted for all the independent variables. Using the Pearson coefficient of correlation, we consider any correlation between two variables + 0. 75 as strong. For instance, from Table 1 beneath there is no significant correlation between earnings per share and dividend per share. Our translations for it are into parts.First, all the companies in the sample report earnings per share for each of the years covered by the study though in some instances the EPS are negative but not all the companies say and /or paid dividends throughout all the periods. Secondly, EPS movement unlike DPS is largely outside the control of the Management. There is a strong correlation between crude oil price and GDP. The justification for the correlation between crude oil price and GDP can be found in the fact that the Nigerian economy preponderantly depends on oil revenue.Table I DPS EPS GDP OIL INT INF FX Outcomes of the Multicollinarity Test (Pearson Coefficient of Correlation DPS 1 -0. 302 0. 609 -0. 395 -0. 498 -0. 521 0. 724 EPS 1 -0. 523 -0. 596 0. 366 0. 778 -0. 037 GPD 1 0. 959 -0. 702 -0. 492 0. 795 OIL INT INFL FX 1 -0. 706 -0. 434 0. 614 1 0. 988 -0. 424 1 -0. 313 1 A strong correlation also exist between INFL and INT which expertness be the result of manufacturers and service providers passing increased lending interest rate to consumers. A strong correlation exists between FX and GDP.Unexpectedly, there is a strong correlation between INF and EPS, we do not have any explanation for this relationship. For our regression analysis, OIL and INFL were dropped from the model. Though there is a strong correlation between FX and GDP, both variables are used in the regression. FX and GDP variables are significant to the economy of developing nations like Nigeria, therefore thei r projection from the regression would result in a very high immutable (? ). 185 International Research Journal of Finance and Economics Issue 30 (2009)A regression analysis was run on the independent variables DPS, EPS, GDP and INT after dropping OIL, INFL and FX. Table I shows the result of the regression analysis. Table II Summary of the obsession summary R2 0. 99996 ? 67. 2385 0. 3835 0. 0869 0. 3805 0. 8236 1. 9741 correct R2 0. 99978 T Test 9. 597 36. 259 33. 369 21. 809 7. 375 11. 214 Standard wrongdoing of Estimates 0. 4752 F Test 5385. 033 R 0. 99998 changeless DPS EPS GDP INT FX The stock price (P) is extremely sensitive to variation as indicated by R2 of 0. 99996. In other words there is 99. 9% and as a matter of fact 100% in stock variation caused by the independent variables. The discrepancy as measured by coefficient of variation (? ) is expectedly positive for DPS, EPS and GDP and expectedly negative for lending interest (INT) though quite significant ly. The ? for DPS and EPS though positive were not significant. Many of the companies resorted to gift issues instead of dividends and the Nigerian investors are more interested in incomes rather than capital appreciation especially where the stock market performance is poor.The failure to declare and pay dividend leaves two negative impacts on stock prices. The existing investors are denied additional capital to invest and the potential investors seeking investment incomes are deter. The hypothesis that EPS affect stock price significantly is accepted. The positive GDPs coefficient in relation to the stock price is in agreement with some other studies (Udegbunam and Eriki,2001 Ibrahim 2003 Mukherjee and Naka 1995 Chaudhuri and Smiles, 2004). The ? is insignificant at 0. 805 and this might not be separated with the increase foreign reserve maintained by CBN from the rejoinder of crude oil sales. The proceeds of the crude oil sales are not released to the economy for investment in various productive sectors of the economy but rather held in foreign economies as part of the CBNs monetary policies. The domestic economy is denied of the investments that would have occurred if the funds in the foreign reserve are released for disbursal in the domestic economy. The hypothesis that the GDP affects stock price significantly is accepted.The coefficient of interest which is negative is expected and found to be significant. The negative coefficient of the lending interest rate is in agreement with the findings of Al-Qenae, Li & Wearing (2002), and Mukherjee and Naka (1995). Lending interest rate is a strong tool in the pass on of CBN to influence the economy and where the interest is high as it is Nigeria where lending interest rates hovers between 22% and 25%, the approachability of the investors to access funds is curtailed and the impact on the stock price would be negative as shown.The hypothesis that lending interest rate affects the stock price significantl y is accepted The foreign exchange rates coefficient is significantly negative at significant level of 10%. This is not unexpected. Local and foreign investors tend to invest in an economy that has a very high currency exchange rate to foreign currencies. The local investors are discouraged from taking their funds out of the economy for fear of reduced purchasing while foreign investors are encouraged other for increased purchasing power. The hypothesis that foreign exchange rate affects the stock price significantly is accepted.Lastly, the constant (? ) is 67. 2385 (negative). This suggests that the minimum stock price in the market is 0. We had ab initio excluded FX from the regression for the reason of its collinearity with GDP but the constant was negative and excessively high. The inclusion of FX has reduced the negativity which is an indication that there are other important variable(s) that significantly affect the stock prices but not considered in this study. The stock price cannot be 0 except the company is in liquidation. International Research Journal of Finance and Economics Issue 30 (2009) 186This raises an important question of what factor(s) could have accounted for the extra mediocre stock market performance in Nigeria between 2005 and 2007 where some stocks return over 1000% per annum. The nation House of illustrations Committee on Capital merchandises expressed disgust at the hitch up in the stock prices of companies in the banking and oil sectors (Thisday sensitivespapers, 2008). The hike which may not be a non-economic factor (such as political, icteric competition, profiteering by issuers who are at the same time market investors) may be the omitted important variable accounting for the high ?. . 0. Conclusions and Recommendations The forces of demand and supply have direct effect on the stock price while the other indeterminate number of firm, industry and country factors influences the demand and supply factors. The effect, positive or negative the other factors apart from the demand and supply leave on stock price are not static rather changes. For instance, lending interest rate effect could be positive or negative depending on the aim of the CBN in deploying it as one of the tools for implementing monetary policy.The study has contributed to existing literatures in confirming or raising new issues with respect to other factors influencing stock prices. affaire researchers may want to identify and examine the non-economic factor that account for the high constant (? ) which may not be unconnected with the current meltdown in the Nigerian stock market. Lastly, policy makers who are come to about the growth of the capital market are better informed on how to deploy the monetary policies instruments as well other economic indices to achieve the sought after market growth. Bibliography 1 2 3 4 5 6 7 8 9 10 11 12 Allen, F. nd G. R. 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Frank (2004) Information Uncertainty and Stock Returns An Article Submitted to The Journal of Finance Manuscript 1149 www. afajof. rg/afa/forthcoming/zhang_information. pdf Zhao, Xing-Qiu (1999), Stock prices, inflation and output evidence from China, Applied Economics Letters, 6 extension attachment I Selected Market Indices (2001 2007) YEAR set* DPS* EPS* GDP** INT** 42. 53 430. 00 393. 29 431,783. 10 21. 34 2001 43. 70 432. 72 412. 52 451,785. 60 29. 70 2002 109. 21 577. 63 459. 83 495,007. 10 22. 47 2003 116. 76 552. 48 600. 59 527,576. 00 20. 62 2004 110. 56 466. 97 708. 90 561,931. 40 19. 47 2005 102. 33 553. 87 1,666. 03 595,821. 61 18. 43 2006 95. 87 549. 93 894. 96 561,776. 34 19. 1 2007 Source Central Bank of Nigeria Statistical Bulletin** Cashcraft Asset Management hold / APT Securities and Fund Limited * OIL** 24. 50 25. 40 29. 10 38. 70 57. 60 66. 50 54. 27 INFLE** 18. 90 12. 90 14. 00 15. 00 17. 90 8. 20 13. 70 FX ** 111. 94 120. 97 129. 36 133. 50 132. 15 128. 65 131. 43 189 International Research Journal of Finance and Economics Issue 30 (2009) Appendix II reasoning backward Analysis Of Selected Market Indices (2001 2007) Multiple analog Regression Esti mated Regression Equation SPt = +0. 38353330161483 DPSt +0. 086971432931437 EPSt +0. 38049146437789 GDPt -0. 82357353121514 INTt -1. 740597666311 FXt -67. 238476376193 + et Multiple Linear Regression Ordinary Least Squares Variable DPSt EPSt GDPt INTt FXt changeless Variable %DPSt %EPSt %GDPt %INTt %FXt %Constant Variable parametric quantity 0. 383533 0. 086971 0. 380491 -0. 823574 -1. 97406 -67. 238476 Elasticity 2. 201042 0. 359282 2. 221624 -0. 200986 -2. 822992 -0. 75797 Stand. Coeff. S. E. 0. 010577 0. 002606 0. 017447 0. 111666 0. 17603 7. 006084 S. E. * 0. 060703 0. 010767 0. 101869 0. 027251 0. 25173 0. 078979 S. E. * T-STAT H0 parameter = 0 36. 259468 33. 368601 21. 808584 -7. 375331 -11. 214366 -9. 597156 T-STAT H0 elast = 1 19. 785697 -59. 07274 11. 992081 -29. 320395 7. 241855 -3. 064493 T-STAT H0 coeff = 0 2-tail p-value 0. 017553 0. 019073 0. 029171 0. 085794 0. 056618 0. 066096 2-tail p-value 0. 032148 0. 010697 0. 052964 0. 021704 0. 087356 0. 200805 2-tail p-valu e 1-tail p-value 0. 008776 0. 009536 0. 014585 0. 042897 0. 028309 0. 033048 1-tail p-value 0. 016074 0. 005349 0. 026482 0. 010852 0. 043678 0. 100402 1-tail p-value 0. 008776 0. 009536 0. 014585 0. 042897 0. 028309 0. 5 S-DPSt 0. 763848 0. 021066 36. 259468 0. 017553 S-EPSt 0. 69251 0. 020753 33. 368601 0. 019073 S-GDPt 0. 729372 0. 033444 21. 808584 0. 029171 S-INTt -0. 09814 0. 013307 -7. 75331 0. 085794 S-FXt -0. 48017 0. 042817 -11. 214366 0. 056618 S-Constant 0 0 0 1 Computed against deterministic endogenetic series *Note Multiple Linear Regression Regression Statistics Multiple R 0. 999981 R-squared 0. 999963 Adjusted R-squared 0. 999777 F-TEST 5385. 033289 Observations 7 Degrees of Freedom 1 Multiple Linear Regression Residual Statistics Standard Error 0. 475177 Sum square Errors 0. 225793 Log Likelihood 2. 086595 Durbin-Watson 3. 380955 Von Neumann Ratio 3. 944448 et 0 3 et 0 4 Runs 6 Runs Statistic 1. 333946 NB Regression analysis was done using a software develop ed by Wessa (2008)