Topics: Stock market, Stock exchange, Financial crisis Pages: 13 (3810 words) Published: December 4, 2013



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 distribution etc. The major stock exchanges in the world today include New York Stock Exchange, London Stock Exchange, Frankfurt Stock Exchange, Italian Stock Exchange, Hong Kong Stock Exchange and Tokyo Stock Exchange.

There have been various stock market crashes in the past such as the Wall Street crash of 1929, the crash of 1973/74, the 1987 crash; called black Monday, the dotcom bubble of 2000 and the more recent crash in 2008 caused by the subprime mortgage crisis in America. The economic crisis of 2008 which originated in America spread to various economies in the world and their stock markets were affected. It reduced the value of stocks around the world by as much as 41% and affected both major and emerging stock markets. The Nigerian stock market is an emerging market in Africa. After attaining the position of one of the most profitable, efficient and fastest growing equity market in the world, with a return on investment of up to 78% in 2007 the Nigerian Stock Exchange (NSE) was seen as an investment haven. On reaching an all time high of 66,371.2 points and N12.6 Trillion in market capitalisation in March 2008 the Nigerian Stock Market (NSM) began to plummet. By March 2009 a year later, the NSE had lost about 60% of its value and was left with a market capitalisation of N4.6 Trillion, sending all the stake holders into panic.

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.

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.

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...

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