Effects of Finanacial Crises on Nigerian Capital Market

Topics: Subprime mortgage crisis, Financial markets, Financial crisis Pages: 17 (5201 words) Published: April 14, 2011
INTRODUCTION
With its roots in banking, the sub-prime mortgage crisis that commenced in the United States in 2007 soon resonated in other sectors of its financial system, and the economy, at large. It spread quickly to the developed economies in Europe, including the United Kingdom, and Asia -with Japan becoming well affected. The emerging economies were not isolated. A transmission channel of the global financial crisis, which has been referred to as the “Globalised Synchronized Slowdown” is the stock market SERE-EJEMBI, (2008). Around the world stock market indicators started falling. The capital market, vis-à-vis the stock market, is a channel through which national economies receive foreign capital flows that make their tendency towards the global economy easy visible. Developments in the market thus become a reflect ion of global financial development. The level of responsiveness, however, depends on the level of development, exposure and insulation of the domestic market from the vagaries of the international. In the case of the Nigerian stock market, following initial relative insulation, the speed of contagion and response was comparatively slower. However, the effects began to manifest in the first quarter of 2008. All market indicators commenced a downward spiral. Negative market growth ensued. The mono cultural dependency of the Nigerian economy contributes to the exposure of the economy to global financial crises

According to Al-Faki (2006), the capital market is a “network of specialized financial institutions, series of mechanisms, processes and infrastructure that, in various ways, facilitate the bringing together of suppliers and users of medium to long term capital for investment in socio-economic developmental projects”. The capital market is divided into the primary and the secondary market. The primary market or the new issues market provides the avenue through which government and corporate bodies raise fresh funds through the issuance of securities which is subscribed to by the general public or a selected group of investors. The secondary market provides an avenue for sale and purchase of existing securities. It also accommodates external capital through foreign direct investment. Making it expose to fluctuations in the foreign economies.

Scope of study
This paper is focus on the impact of global financial crises on the Nigerian capital market laying emphasis impact of foreign direct investment and the prices of crude oil. This study also attempt to established the linkage between the Nigerian economy and the rest of the world,

JUSTIFICATION OF STUDY
The issue of global financial crises has been given much attention since its inception in the 4th quarter of 2011, many writers and researchers have contributed enormously to this field try to find answers to questions ranging from the cause of the crises to its impact on the economy of different, regions, country and sectors within an economy. In Nigeria the case is not an exception students, researchers, and other stakeholders have make their contribution in this area. Narrowing down to the scope of this study many people sere-ejembe , Ndi okereke have made contribution in this field. But many of this writing did not relate the variables in specifics, that is why I set out to find out the changes brought about by global financial crises on some economic activities and to relate this changes to the Nigerian capital market STATEMENT OF PROBLEM

The policy error in the United States that caused Current Global Crisis started as a ‘financial crisis’ but now a ‘Global Economic Crisis. This led to a worldwide fall in the prices or value of asset including shares of quoted companies also during that period the prices of crude oil dropped, the price reached a record high of US$ 147 per barrel (US$/b) in July 2008 on the back of a six-year commodity boom cycle driven mostly by demand from developing countries. However, as of August 2008, oil prices...

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