Market Frictions and Stock Market Performance in Nigeria
Abstract
What comes to mind when we hear the phrase “financial market frictions” are taxes and transactions costs which are obvious examples, but market frictions are diverse and widespread. This paper models the various components of financial market friction and how they affect the Nigerian capital market with emphasis on variables like transaction cost, taxes and regulations, asset indivisibility, non-traded asset and agency with information problems. The study employed use of econometric analysis like unit root test, co-integration test, correlation and regression with time series data from 1981-2018. It was discovered that the various components affect the stock market performance in different ways and also are real determinants of the various responses to issues in the stock market.
Considering the results of econometric analysis, the study recommended among others proper management of the transaction costs, while the taxes paid by investors in the country should provide opportunity for investment and the capital market should operate in such a way as to make access to information valid while the number of instruments traded on the stock exchange should be increased to make investors have options.
References
Bongaerts, D., De Jong, F. & Driessen, J. (2012). An Asset Pricing Approach to Liquidity Effects in Corporate Bond Markets. Available at http://dx.doi.org/10.2139/ssrn.1762564
Brunnermeier, M. & Pedersen, L.H. (2008). Market Liquidity and Funding Liquidity. Review of Financial Studies, 22, pp. 2201-2238
Chordia, T., Roll R. & Subrahmanyam, A. (2008). Liquidity and Market Efficiency. Journal of Financial Economics, 87.
Cox, Barbara, & Koelzer. (2000). Internet marketing in real estate. Lebanon, Ind.: Prentice Hall.
CBN (2019) Statistical Bullentin of the Central Bank of Nigeria, 2018, Abuja,Nigeria.
DeGennaro, R. P. (2003). Direct investments: A primer. Federal Reserve Bank of Atlanta Economic Review 88(1), 1–14.
DeGennaro, R. P. & Sangphill K. (1986). The CAPM and beta in an imperfect market: Comment. Journal of Portfolio Management 12(1), pp.78–79.
Deelstra, G., Pham, H. & Touzi, N. (2001). Dual Formulation of the Utility Maximization Problem under Transaction Costs. The Annals of Applied Probability, 11, pp. 1353-1383.
He, Hua, & Modest. (1995). Market frictions and consumption-based asset pricing. Journal of Political Economy 103(1), pp. 94–117.
Herings, P. & Schmedders, K. (2006) .Computing Equilibria in Finance Economics with Incomplete Markets and Transaction Costs,. Journal of Economic Theory, 27(1), pp. 493-512.
Eberly, J.C. & Wang, N. (2016). Capital Market frictions and liquidity Management with reallocation and growth, Columbia Journal of Business, 23(2), pp. 112-142
Jensen, M. (1986). Agency costs of free cash flow, corporate finance, and takeovers, American Economic Review 76(2), pp. 323–29.
Jayaratne, J. & Morgan, D. (2010). Capital Market frictions and Deposits Constraints at Banks, Journal of Money, Credit and Banking, 32(1), pp. 74-92.
Kane, E.J. (2000). Incentives for banking megamergers: What motives might regulators infer from event-study evidence? Journal of Money, Credit, and Banking 32(3), pp. 671–701.
.
Liu, H. & Loewenstein, M. (2002). Optimal portfolio selection with transactions costs and finite horizons. Review of Financial Studies, 15(1), pp. 805-835.
Llorente, G., R., Michaely, G. S. & Wang, J. (2002). Dynamic volume return relation of individual stocks. The Review of Financial Studies, 15(1), pp. 1005-1047.
Lo, A.W., Mamaysky, H. & Wang, J. (2004). Asset prices and trading volume under fixed transactions costs. Journal of Political Economy 112(5), pp.1054–90.
Longhofer, S.D., & Peters, S.R. (2005). Self-selection and discrimination in credit markets. Real Estate Economics 33(2), pp. 237–68.
Luttmer & Erzo, G.J. (1996). Asset pricing in economies with frictions. Econometrica 64(6), pp.1439–67.
Miller, M.H. & Scholes, M.S. (1978). Dividends and taxes. Journal of Financial Economics 6(4), pp.333–64..
Palacios, M. (2002). Human capital contracts: “Equitylike” instruments for financing higher education. Cato Institute Policy Analysis 462(1), December 16.
Quinn, S.F. & Roberds, W. (2003). Are on-line currencies virtual banknotes? Federal Reserve Bank of Atlanta. Economic Review 88(2), pp.1–15.
Smith, Adam. 1776. The wealth of nations. Edited by Edwin Cannan. New York: Modern Library, 1937.
Sodano, S. F. (2004). Letter to Jonathan G. Katz, secretary, Securities and Exchange Commission, June 30.
Stoll, H. R., (2000). Friction. Journal of Finance, 55, pp.1479-1514.
Tkac, P.A. (2004). Mutual funds: Temporary problem or permanent morass? Federal Reserve Bank of Atlanta. Economic Review 89 (4), pp.1–21.
Tuckman, B. & Vila, J.L. (2010), .Holding Costs and Equilibrium Arbitrage, bikibook.com.
Van Binsbergen, J. H. & Koijen, R.S.J. (2010). Predictive Regressions: A Present-Value Approach. The Journal of Finance, 65, pp. 1439-1471.
Vayanos, D. (1998). Transaction Costs and Asset Prices: A Dynamic Equilibrium Model. The Review of Financial Studies, 11, pp.1-58.
Wang, N. & Eberly, J.C. (2010). Reallocating and Pricing Illiquid Capital: Two Productive Trees Columbia Business School Research Paper Available at SSRN: https://ssrn.com/abstract=1915332 or http://dx.doi.org/10.2139/ssrn.1915332
Downloads
Published
How to Cite
Issue
Section
License
Copyright (c) 2022 Michael O. Adelowotan, Segun A. Oshadare, Joseph E. Idolor
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.
The author fully assumes the content originality and the holograph signature makes him responsible in case of trial.
