PROPOSED RESEARCH TITLE: AN INVESTIGATION INTO THE DOWNWARD TREND IN GLOBAL STOCK MARKETS: A CASE STUDY OF THE NIGERIAN STOCK MARKET RESEARCH BRIEF 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 Dr Wilson/Research Proposal Sample/Student’s Copy/2010 Page 1

these companies usually want to raise finance. By March 2009 a year later. When the economy looks good. the stock market reflects it as well. The process of buying and selling is called trading.371. the brokers also offer investment advice and research services. brokers and market makers. On reaching an all time high of 66. if it is unable to find counterparties for a buy or sell order. The investors can be individuals or institutional bodies that trade either on their own behalf or on behalf of other investors. There are various participants in stock markets. with a return on investment of up to 78% in 2007 the Nigerian Stock Exchange (NSE) was seen as an investment haven. Broker’s act as agents who try to carry out trades on behalf of their clients at the best possible price. The primary market deals with the listing of new companies on the exchange. they have to be prepared to take an open position. the stock market performs well and when the economy goes bad. The market maker is a dealer that quotes both buy and sell prices of securities on a continual basis. sending all the stake holders into panic. STOCK MARKETS A stock market is a place where stocks and securities can be exchanged or sold from one owner to another. There are investors. The stock market reflects and magnifies all economic flaws. It accounts for the majority of the transactions that take place in the stock market.fastest growing equity market in the world.2 points and N12. It is a place where buyers and sellers of securities meet.6 Trillion in market capitalisation in March 2008 the Nigerian Stock Market (NSM) began to plummet. Dr Wilson/Research Proposal Sample/Student’s Copy/2010 Page 2 . The secondary market deals with buying and selling existing securities.6 Trillion. Stock markets are divided into both primary and secondary markets. the NSE had lost about 60% of its value and was left with a market capitalisation of N4.

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 is usually unsustainable. FINANCIAL CRISIS A financial crisis is a disruption to financial markets which hinders the market’s capacity to allocate capital. An economy which has benefited from large capital inflows stops receiving such inflows and faces a sudden reversal of capital flow. Market crashes are usually accompanied by large selling pressures in the market. The anticipation of such difficulties could set off disorderly actions if investors rush to take out their investment from the crisis country. Financial crisis in emerging markets are usually accompanied by difficulties of the concerned party to honour its contractual responsibilities to foreign investors. FINANCIAL CRISIS IN EMERGING MARKETS When there is a financial crisis in an emerging market such as Nigeria.MARKET CRASH A market crash is a large and sudden drop in asset prices. EFFICIENCY OF FINANCIAL MARKETS The efficiency of a market could be looked at from a variety of view points. The drop in asset prices occurs really quickly while the recovery is a slow process. Allocative efficiency has to do with how well a market allocates scarce capital resources amongst competitors in order for them to be used most productively. operational or informational efficiency. It could be an allocative. It results in a series of chaos. In an ideal situation capital Dr Wilson/Research Proposal Sample/Student’s Copy/2010 Page 3 .

2. 4.would be allocated to firms that can achieve the best marginal returns. To recommend solutions based on my research that will help to predict and prevent financial crisis. A strict adherence to operational efficiency will mean that transaction costs of making a market are zero. A market is said to be perfectly efficient if it is concurrently allocatively efficient. In an ideal situation investors will pay minimal transaction costs and competition between brokers would ensure that only normal profits are earned on their activities. A market is operationally efficient if the transaction costs of operating the market are determined competitively. Dr Wilson/Research Proposal Sample/Student’s Copy/2010 Page 4 . To examine the characteristics of the recent downward trend in the Nigerian Stock Market in relation to financial crisis in emerging markets. A market is informationally efficient if the current market price of a security instantly and fully reflects the all relevant available information. To identify the cause of the present crisis in the Nigerian Stock Market and relate it to past crashes in global stock markets. operationally efficient and informationally efficient. RESEARCH AIMS AND OBJECTIVES In my research I intend to look at the reasons for the collapse of the Nigerian Stock Market. My aims and objectives are 1. To review extant conceptual models and theoretical frameworks related to evolutionary trends of the Nigerian Stock Market. this however is unrealistic because markets will not exist if the people who operate them are not rewarded for doing so. 3. the effects of the global economic crisis on the NSM and also the other challenges faced by the Nigerian Stock Market as an emerging markets as stipulated by Pettis (2001).

The Importance of investor’s beliefs was highlighted in the second generation model. the literature on financial crisis is classified into three models namely first-generation models. The first generation model Krugman (1979). The crisis then starts from the fact that defending parity is more expensive as Dr Wilson/Research Proposal Sample/Student’s Copy/2010 Page 5 . Obstfeld (1994) (1996).RESEARCH QUESTIONS In order to guide my inquiry and shed more light on my research into the downward trend in the Nigerian Stock Market I intent to answer the following research questions: 1. Is the NSM crisis as a result of the global financial crisis or is it a challenge faced by emerging markets? LITERATURE REVIEW: As shown in Feridun (2004). How does previous crashes in global stock markets relate to the present crisis in the Nigerian Stock Market? 2. secondgeneration models and third-generation models. What are the causes of the downward trend in the Nigerian Stock Market? 3. Flood and Garber (1984) explains that “a government with continual money-financed budget deficits is believed to use a restricted stock of reserves to peg its exchange rate and the attempts of investors to anticipate the inevitable collapse generates a speculative attack on the currency when reserves fall to some critical level”. Radelet and Sachs (1998) Ozkan and Sutherland (1995) all agreed that “policy is less mechanical: a government decides whether or not to defend a pegged exchange rate by making a trade off between short-run macroeconomic flexibility and longer-term credibility”.

The signals approach was developed by Kaminsky et al (1998). herd behaviour and contagion. or purely through self-fulfilling prediction (Vlaar. they used limited dependent variable models known as probit or logit regressions to identify the causes of crisis and to predict future crisis. The third generation model which came about in the 1990’s after the Mexican tequila crisis of 1994 and the Asian crisis of 1997. The probit/logit model was pioneered by Frankel and Rose (1996). 2000). contagion has been emphasized during crisis times. a speculative attack on a currency develops either as a result of a predicted future deterioration in macro fundamentals. The contagion model comes in a variety of theoretical forms and has been subjected to a large amount of empirical testing and scrutiny. possibly wrong information. This theory leads to an emphasis on the informational transparency in markets to prevent financial crisis. Then. The recent efforts at developing an early warning system for a looming financial crisis have taken the form of two related approaches which are probit/logit model or signalling model. Contagion is “the cross-country transmission of shocks or the general cross-country spill over effects”. Dooley (1997) Krugman (1998) Radelet and Sachs (1998) classified it into three different groups which are moral hazard. Should the market believe that the defence will ultimately fail. Moral hazard emphasises mainly on “liquidity shocks” as an explanations of financial requires higher interest rates. and it consists of a bilateral model where a set of high Dr Wilson/Research Proposal Sample/Student’s Copy/2010 Page 6 . contagion does not need to be related to crises. Contagion can take place both during "good" times and "bad" times. However. Herd behaviour which was developed by Banerjee (1992) and Bikchchandani et al (1992) complements the logic in the second generation models by illustrating a mechanism where large expectation shift occur due to a small injection of new.

Positivism involves “working with an observable social reality and that the end product of such research can be law-like Page 7 Dr Wilson/Research Proposal Sample/Student’s Copy/2010 . The process by which a research is written or carried out is very important because it has a huge impact on the conclusions reached at the end of the research. one at a time with a crisis index so that when one of these variables deviates from its normal level beyond a specific threshold value prior to a crisis it issues binary signals for a possible currency crisis. A market is said to be strong-form efficient if the current price of securities instantly and fully reflects all information. There are two major research philosophies which underpin the research strategy and the method that will be used to carry out a research (Collis and Hussey. A market is said to be semi-strong-form efficient if the current prices of the securities instantly and fully reflect all publicly available information. “research is the systematic study of materials and sources etc. The statement that market prices instantaneously and fully reflect all relevant available information is known as the efficient market hypothesis. They are the positivism and interpretivism research paradigm. in order to establish facts and reach new conclusions” (Oxford Concise Dictionary). RESEARCH METHODOLOGY: Research is an essential part of academics. both public and private”. semi-strong-form efficiency and strong-form efficiency.frequency economic variables during a specified period is compared. According to Fama (1970): “A market is said to be weak-form efficient if the current prices of securities instantly and fully reflect all information of the past history of security prices. 2009). Fama (1970) provided an operational base for testing market efficiency by distinguishing between three types of efficiency: weak-form efficiency.

I cannot change or alter the facts about the collapse of the Nigerian Stock Market. The paradigm adopted contains important assumptions about the way the researcher views the world Saunders et al (2007). 1997). I will be detached from my research and have little or no influence on the data collected. 1998:32). The case study strategy will be very good for this research because it will give the much needed in depth understanding into the collapse of the Nigerian Stock Market. I will employ the positivist paradigm because by using a reality which is separate from my knowledge of the area. in conducting this research. The research strategy that will be used is the case study which according to Robson (2002:178) is “a strategy for doing research which involves an empirical investigation of a particular contemporary phenomenon within its real life context using multiple sources of evidence”. Interpretivism is “a philosophical position which is concerned with understanding the way we as humans make sense of the world around us. the underlying assumption is that by placing people in their social context. it provides an objective reality against which researchers and other stakeholders in the Nigerian Stock Market can compare claims and ascertain the truth. Since a case study is closely aligned with an interpretivist perspective. the assumption is that “the researcher is independent of and neither affects nor is affected by the subject of the research” (Remeneyi et al. The research will be undertaken in a value free way because irrespective of what I feel or think.generalisations similar to those produced by the physical and natural scientists”. the Dr Wilson/Research Proposal Sample/Student’s Copy/2010 Page 8 . The positivist paradigm will also make it possible for my results to be applied externally and more broadly outside the study context because it will be reliable and unbiased. there is greater opportunity to understand the perceptions they have of their own activities” (Hussey and Hussey.

Interviews will also be used as a data collection method. quantitative is the use of numerical data or data that have been quantified while qualitative is the use of non-numerical data or data that have not been quantified. public offers. In order to seek convergence of results this research will be triangulated because I will use both qualitative and quantitative research methodologies. survey and those from multiple sources. There are three main types of secondary data: documentary. The application of these two methods allows them to counter balance the strengths of each other. Tashakkori and Teddlie (2003) say that “multiple methods are useful because they provide better opportunities to answer research questions and better evaluate the extent to which research findings can be trusted and inferences made from them”. et al 2007).proposed study will triangulate survey with case study. of various companies quoted on the Nigerian Stock Exchange. Secondary data is data that have already been collected for some other purpose. Quantitative and qualitative data collection techniques and analysis procedures each have their own strengths and weaknesses (Smith. market capitalisation etc. I will focus on the banking sector which is a major player in the Nigerian Stock Market and examine the trends that took place in the sector and its overall effect on the Nigerian Stock Market. The findings from the quantitative will help to validate the findings from the qualitative thereby making the research more reliable and credible. I will use data such as previous share prices. The primary benefit of this triangulation is that survey will flesh out larger data collection than case study which emphasises on a smaller scale. RESEARCH METHOD: For the purpose of this research. 1975). Research methodologies can either be quantitative or qualitative. this will help to get well-founded and reliable data that is relevant to Dr Wilson/Research Proposal Sample/Student’s Copy/2010 Page 9 . I will be making use of secondary data. perhaps processed and subsequently stored (Saunders.

A structured interview is a data collection technique in which an interviewer actually meets the respondents. Semi-structured and unstructured interviews will be used for this research because the semi-structured interviews will allow me to get answers to precise areas of the research that needs clarification and are specific to each respondent while the unstructured interviews which will be less restricted will allow the interviewee to express their opinions freely and give me the opportunity to get information that could be useful to my research which I don’t necessarily know exists. a lot of the opinions regarding the crash of the Nigerian Stock Market vary from person to person. Interviews can be structured. Also. research aims and objectives and also help to answer the research questions. I will interview • • • • Representatives of regulatory bodies Representatives of corporate organisations Stock brokers and analysts Shareholders and investors Dr Wilson/Research Proposal Sample/Student’s Copy/2010 Page 10 . An interview is a purposeful discussion between two or more people (Kahn and Cannell. A semistructured interview is a type of interview where the interviewer starts with a set of interview topics but is ready to vary the order in which the questions are asked and to can ask new questions in the framework of the research circumstances. 1957).structured or unstructured. reads them the same set of questions in a prearranged order and records their reply to each question. An unstructured interview is an informally conducted interview that may commence with one or more subject matter to discuss with the participants but without a predetermined list of questions to work through. the unstructured interview will give me the opportunity to get in-depth and varied response from the various respondents.

The grounded theory approach will be used for this research because it will help to analyse the information gathered into a clearly defined hypothesis that will explain the reason for the crash of the Nigerian Stock Market. After the data analysis I aim to show that there is a relationship between some key economic/financial variables and the Dr Wilson/Research Proposal Sample/Student’s Copy/2010 Page 11 . return on capital. Bernard (1952) defined content analysis as "a research technique for the objective. systematic. there is a link between this method and the grounded theory method. thematic analysis. All of these help to highlight vital information and recommend conclusions which help in decision making processes. I will analyse its behaviour during the crisis and pre-crisis period and compare it with its behaviour during a non crisis period using a regression analysis. Data will be analysed using the axial coding which will help to identify relationships between the various categories of data through a combination of inductive and deductive thinking. Thematic analysis is an approach to dealing with data that involves the creation and application of ‘codes’ to data. For each variable. liquidity. identify patterns. I will compare these variables over a period of three years and across various sectors in the Nigerian Stock Market. and quantitative description of manifest content of communications". develop explanations and test hypothesis. theoretical sampling. The quantitative data such as market capitalisation. Data can be analysed using various methods such as content analysis. market efficiency and various macroeconomic variables which are linked to the collapse will be analysed using the chi square and the analysis of variance. it is a systematic analysis of data that aims to develop a higher level of understanding or generate theories regarding a social phenomenon. grounded theory etc. Grounded theory was discovered by Glaser and Strauss (1967) as a method of analyzing data.ANTICIPATED METHOD OF ANALYSIS AND FINDINGS: Data analysis is a process that aims to describe facts.

the data collection and processing method and how we report our research findings in a moral and responsible way. Although all research methods have specific ethical issues associated with them. The quantitative information’s are readily and publicly available without any form of moral or ethical intrusion. I also intend to demonstrate that the downward trend experienced in the Nigerian Stock Market was due to the challenges faced by emerging markets.performance of the Nigerian Stock Market. The respondents will be voluntary participants because they won’t de coerced into participating in the research. I will get the qualitative information the use of semi-structured and unstructured interviews. ETHICAL CONSIDERATIONS: Research ethics relates to questions about how we formulate and clarify our research topic. The appropriateness of a researcher’s behaviour in relation to the rights of those who become subject of their work or are affected by their work is referred to as research ethics (Saunders et al. qualitative research is likely to have a greater range of ethical concerns compared to quantitative research. except an agreed approval is given by the respondent for his or her identity to be declared. Most of the data that will be used in conducting this research will be quantitative data. CONCLUSION: This research will highlight the macro economical and micro economical factors responsible for the downward trend in the Nigerian Stock Market and develop a link between these factors and Dr Wilson/Research Proposal Sample/Student’s Copy/2010 Page 12 . The confidentiality and anonymity of the participant will also be respected. they will be given full information regarding the procedure and risk involved in participating thereby giving an informed consent. 2007).

and A. “Collapsing Exchange Rate Regimes: Some Linear Example” Journal of International Economics. 25:383–417 Flood. 992-1026 Dooley. Journal of Political Economy 100(5). (1992). I.. NBER Working Paper. TIMESCALE: Proposal presentation –------------------------1st April 2009 Written project proposal (draft)-------------. M. J. R. P. (1996) “Currency Crashes in Emerging Markets. Volume 41 Dr Wilson/Research Proposal Sample/Student’s Copy/2010 Page 13 . B (1952) Content Analysis in Communication Research. “A theory of fads. custom and cultural change as informational cascades”. Volume 17 Frankel. Hirschleifer. (1997) “A Model of Crisis in Emerging Markets”. A (1992) “A simple model of herd behaviour”. Cambridge MA Fama E. and Garber. fashion.the collapse of the market. An Empirical Treatment. Journal of Finance. (1984). D. S. A proposition that will help prevent or forecast an imminent collapse will also be put forward. QJE 107: 797-819 Berelson. Rose. New York: Free Press Bikchandani.15th April 2009 Written project proposal (final)----------------19th June 2009 Information and data collection----------------June 2009 Interviews with various stakeholders----------June/July 2009 Analysis of the information collected----------July 2009 Final writing of the dissertation-----------------August 2009 Submission –--------------------------------------End of August 2009 REFERENCES Banerjee. (1970) “Efficient capital markets: a review of theory and empirical work”. and Welch. Number 6300.” Journal of International Economics.

(2002) Real World Research (2nd edn). Money. "A Model of Balance of Payments Crises". Basingstoke Kahn. Oxford University Press.. Pearson Education Dr Wilson/Research Proposal Sample/Student’s Copy/2010 Page 14 . (1998). IL. “Bubble. and Vines D. S. B. Journal of Money. C. B.” IMF Staff Papers. P. G. (1994) “The Logic of Currency Crises” Cahiers Economiques et Monetaires (43): 189-213 Obstfeld.. “Policy Measures to Avoid a Currency Crisis. (1967) The Discovery of Grounded Theory. (1997) Coping with International Capital Flows (London: Common Wealth Secretariat) Radelet. Chicago.. Sachs. Oxford. (1957) The Dynamics of Interviewing. (1995). MA: MIT Obstfeld. M.. Wiley Kaminsky. P. and Cannell. Robson. Lizondo. S. G. M (1996) "Rational and Self-Fulfilling Balance of Payments Crises". (1998) Doing Research in Business and management: An Introduction to Process and Methods. and J. (2007) Research Methods for Business Students (4th edn). R. Boom. Prospects. 76 (March). J. 7281 Oxford Concise Dictionary(2009) Compact Oxford English Dictionary. and Thornhill.” Economic Journal. A. Remedies. Lewis. Macmillan Press Ltd. A. M. and Hussey. and Strauss. and Banking. P. Sage. E. 105: 510-519 Pettis M (2001) The Volatility Machine: Emerging Economies and the Threat of Financial Collapse Portes R. London. (1979). Harlow.. Volume 45 Krugman. Crash: Theoretical Notes on Asia’s Crises” (unpublished) Cambridge.Glaser. Vol. and Swartz. Blackwell. Volume 11 Krugman. (1998) “Leading Indicators of Currency Crises. Oxford Ozkan. and Sutherland. Brookings Papers on Economic Activity. C. Williams. New York and Chichester. Credit. (1998) The East Asian Financial Crisis: Diagnosis. A. 1: 1-90 Remeniyi. pp. A. R. Reinhart. Saunders. (1997) Business Research. D. Aldine Hussey. American Economic Review. and C.

(eds) (2003) Handbook of Mixed Methods in Social and Behavioural Research. CA. NJ. P. (1975) Strategies of Social Research: The Methodological Imagination. Number 167 Dr Wilson/Research Proposal Sample/Student’s Copy/2010 Page 15 . C. and Teddlie. A.Smith. Prentice-Hall Tashakkori.” Papers De Nederlandsche Bank. Englewood Cliffs. Thousand Oaks. H. Sage Vlaar. (2000) “Early Warning Systems for Currency Crises.

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