DESCRIPTION OF STUDY
to every monetary policy is the goal of achieving price stability. The
objective of price stability essentially encapsulates the need to eliminate
price expectations to zero and to eliminate the long run uncertainty about the
price level. The trend is interesting and indeed focused within the purview of
two monetary frameworks – inflation targeting and monetary targeting extremes.
The Nigerian CBN has been on both sides of this divide. In between this divide
is found the income targeting frameworks and the Friedman-type policy rule
which itself has been criticized for reasons of perceived instability in the
demand for real money balances by monetary targeting advocates.
of inflation targeting on the other hand are quick to point to the fact that
monetary targeting is an ineffective strategy, because of the underlying core
inflation, which accommodates persistent inflationary pressures, which are
transmitted into inflation expectations.
inflating expectation and long-run price volatility keeps generating interest,
little in terms of studies and policy focus has been on these in Nigeria.
far the studies on Nigeria’s inflation have been able to tell us that
expectations in the price level have been tested under adaptive expectations
whereas the assumptions for rational expectations of prices are considered to
be too strong for prices. It is imperative therefore, to examine the ability of
monetary policy at reducing forward-looking expectations to tolerable levels
that are consistent with desired level of prices.
more so, the concentration has been on the causes of inflation in Nigeria,
where as the role of monetary in the context of Nigeria’s current framework is
not shown to be capable of circumventing or eliminating distortions in the
price level occasioned by uncertainty and forward-looking expectations.
recent opening in emerging financial markets has generated a large literature,
with many commentators predicting that such liberalization will increase the
inflow of foreign capital, leading to greater financial development and
economic growth. In principle, some models maintain that a market opening
should decrease the variability of asset prices. The more able investors are to
adjust the quality of their portfolios in response to shocks, the less impact
there should be on prices, and hence the volatility of returns should fall
(Reinhart 1998). However, the tumultuous events in developing countries over
the last few years have led some practitioners and policy makers to question
whether opening may in fact substantially raise the volatility of asset prices.
several papers examining the behaviour of recently liberalized stock exchanges
(Borenzstein and Gelos 2000), Froot, O’Connell and Seasholes 1999, and
Kaminsky, Lyons and Schmukler 1999 have found strong evidence of herding,
momentum trading, and trend chasing, all of which can substantially increase,
rather than decrease the volatility of share prices.
have been previous studies which have examined the effect of liberalization on
stock volatility (Bekaert and Harvey 1997, Desantis and Imorohoroglu 1997), (Inclan,
Aggarwal and Leal 1997), (Kim and Singal 2000), and (Levine and Servos 1998).
policy targeting in Nigeria is centered on a financial programming approach
that contain an implicit inflation target and external reserves consistent with
the growth of real economic activity and growth of money supply from which the
economy’s absorptive capacity for domestic credit is derived. This study would
therefore be a significant departure from the studies on inflation in Nigeria
by incorporating forward-looking expectations and volatility effects of prices
in determining the long direction of monetary policy action.
the objective of this study is to determine whether inflation expectation and
price volatility have any significant influence on inflation in Nigeria, and;
ipso facto determine the extent to which monetary policy have eliminated
expectations and volatility in the price level.
empirical studies on financial deregulation, stock price volatility and
monetary policy in Nigeria is scanty, the new era of financial practices in
success of financial sector is at the threshold.
the economic significance of this reforms and the low level research in this
area, it is essential that meaningful research should be undertaken to discover
the implication of this reforms in the financial practices with regards to
monetary policy in Nigeria.
address this issue empirically, the main focus of the study is to carry out an
empirical research aimed at addressing the following questions:
What is the implication of deregulation on
the financial sector on the stock market price and monetary policy?
What is the consequence of internal and
external inefficiencies that results from financial sector deregulation?
What is the nature of changes in monetary
policy as it affects equity prices?
Why the changes in monetary policy affect
OF THE STUDY
main purpose of this study is to examine empirically the relationship between
the banking reforms and consolidation and human resource management. Specially,
the study will be designed to achieve the following objectives:
investigate the impact of monetary policy on the deregulation of Nigerian
financial sector as it relates to stock price(s)
analyse the impact of reforms in the financial sector on the operational
performance of this sector in Nigeria
To determine the improvement in linkages
between the formal and informal financial sector of the economy.
To examine critically the performance of
financial deregulation on stock price during pre and post implementation stages
of these reforms
OF THE STUDY
is hope that this study will be theoretically and practically significant.
importance of this study will basically include:
it will contributes to the understanding of economists as well as other users
of economic indicators on how monetary
policy can be employed to deregulate the financial sector of the economy of
Nigeria and its implication on stock prices
so, the study would bridge the gap in the business environment as it relates to
the result of the study is likely to be useful to ascertain effectiveness and
other uses of financial deregulation through monetary policy measures. Also, it
will ascertain the degree and nature of association that exists among the
variables of the subject in question.
AND LIMITATIONS OF THE STUDY
study is limited in scope. The study will focus on Nigerian economy with its
attending financial system review of 1976, 1986 and 2004 financial deregulation
policy. These activities and volatility of stock price within this period would
also be examined as well as the monetary policy measured during these periods.
another issue is the reluctancy of respondents to questionnaire, this is owing
to what seems precious situation in the view of this new development.
it is hoped that despite these limitations, the findings from the study could
find general application to the area of study and provide the building blocks
for future researchers.
view of this, the only possible method of collecting the require information
would be field studies with self-administered questionnaire that will be
interested observing and recording how the variable of the study behave rather
than manipulating them (Asika 1991).
is the relationship between the monetary policy and the reforms in the
is the significance of monetary policy variable on the economy situation of
is the effect of financial sector reform on the stock price volatility and
monetary policy in Nigeria?
relationship does monetary policy in Nigeria have with stock price(s)?
1.7 RESEARCH HYPOTHESIS
During the course of this study the following
hypothesis would be tested:
Ho: The monetary policy has no significant relationship with economy
situation of Nigeria.
H1: The monetary policy has a significant relationship with economy
situation of Nigeria.
Ho: Financial sector does not have any effect on the stock price
H1: Financial sector have effect on the stock price volatility.
Ho: The reforms of financial sector in Nigeria has no positive effect
on Nigerian Economy.
H1: The reforms of financial sector in Nigeria has positive effect on
OF RESEARCH INSTRUMENT
researcher collected his data through the sue of a well designed questionnaires
containing 15 close ended questions of likert scale type (statement with which
the respondent shows the amount of agreement/disagreement).
the study is intended to measure the significance of Financial Deregulation
Stock price volatility and monetary Policy in Nigeria. Then, this likert scale
type of close ended questionnaire is appropriate.
AND SAMPLING PLAN
population of concern in this study is the financial sector. But the population
would be rather too large for the study because of the area covered interms
for the purpose of this study, the researcher has decided to use stratified
sampling method. This allows variability of elements selected within each
stratum to be more homogenous than is the variability of elements between
strata (Ogunjimi 2001)
1.10 OPERATIONAL DEFINITION OF KEY
this is a situation of unstable trend as it relate to price stability in an
this is a situation where there is a shift in the foregoing of a particular
running system or a trend as it relates to a named sector.