Project Materials

EFFECT OF NIGERIA MACRO ECONOMY ON SHARE PRICE VALUE DETERMINATION.

CHAPTER ONE

INTRODUCTION

The stock market reacts to a variety of factors, including macroeconomic, political, and socio-cultural behaviour in any country. Like any other stock market, the Nigerian Stock Exchange reacts positively or negatively to a variety of things occurring within or outside the macroeconomic system.

A stock exchange is an organised entity in which joint stock company securities are freely traded and prices are set by supply and demand. Simply put, it is a place where buyers and sellers can exchange their holdings (stocks, bonds, derivatives, etc.) during business hours.

Investment in equity shares on the stock exchange is a key avenue of investment that provides significant rewards to investors. It also provides financing for enterprises’ capital requirements.

Returns on such equity investments fluctuate due to share price movements, which are influenced by a variety of internal or firm-specific factors such as earnings per share, dividends, and book value, as well as macroeconomic factors such as crude oil price/subsidy removal, interest rate, GDP, inflation, government regulations, and Foreign Exchange Rate (FOREX).

Share prices are used as a benchmark to assess a firm’s performance, and their fluctuations serve as an indicator of a firm’s economic health, thus it is important to be aware of the variables that may have a negative impact on share prices.

However, this study will provide an overview of the Nigerian macroeconomic environment and its impact on bank share value.

This study will also employ the Capital Asset Pricing Model (CAPM) in conjunction with historical stock market prices and dividend payouts to evaluate the value of bank stock.

The valuation derived from this analysis in this study will be used to determine if the stock is overpriced or underpriced. Recommendations will also be provided on whether or not to buy the bank stock for more or less.