Effect of Investors Sentiment on Stock Market Returns in Nigeria

Effect of Investors‘ Sentiment on Stock Market Returns in Nigeria

Project / Seminar Material
Reference ID: PS-14463-TM

DEDICATION

This research material titled “Effect of Investors‘ Sentiment on Stock Market Returns in Nigeria” is dedicated to God for his enabling grace, and to all computer enthusiasts who contributed to make life a pleasant experience during my research documentation.

ACKNOWLEDGEMENT

I extend my sincere gratitude to all those who contributed to the completion of this project. Special thanks to my Supervisor (Name of your Supervisor), the Head of Department (Name of your HOD), the Lecturers in the department of Business Administration and Management (BAM), Book Authors and Profound Scholars of existing or related project material on “Effect of Investors‘ Sentiment on Stock Market Returns in Nigeria” for their invaluable guidance, support, and expertise throughout the journey.

I am also grateful to your study area (mention any funding organizations, if applicable) for their financial assistance. This research would not have been possible without the encouragement and assistance of some stakeholders (mention any mentors, teachers, or colleagues). Additionally, I would like to acknowledge the understanding and patience of my family and friends during this endeavor. Your unwavering support has been a constant source of motivation. Thank you all for being part of this meaningful endeavor.

TABLE OF CONTENTS

PRELIMINARY PAGES

CHAPTER ONE

INTRODUCTION

    CHAPTER TWO

    LITERATURE REVIEW

    • 2.1 Introduction
    • 2.2 Conceptual Review
    • 2.3 Theoretical Framework
    • ⋮
    • 2.4 Empirical Studies

    CHAPTER THREE

    RESEARCH METHODOLOGY

    • 3.1 Introduction
    • 3.2 Research Design
    • 3.3 Population of Study
    • 3.4 Sampling and Sampling Technique
    • 3.5 Validation of Research Instrument
    • 3.6 Method of Data Collection
    • 3.7 Method of Data Analysis
    • 3.8 Questionnaire Administration
    • 3.9 Ethical Consideration
    • 3.10 Statistical Analysis

    CHAPTER FOUR

    DATA ANALYSIS, RESULT AND DISCUSSION

    • 4.1 Introduction
    • 4.2 Presentation and Analysis of Data
    • 4.3 Re-statement of Research Questions
    • 4.4 Test of Hypotheses
    • 4.5 Discussion of Findings

    CHAPTER FIVE

    SUMMARY, CONCLUSION AND RECOMMENDATION

    • 5.1 Introduction
    • 5.2 Summary of Findings
    • 5.3 Conclusion
    • 5.4 Recommendation
    • 5.5 Suggestion for Further Study

    REFERENCES

    APPENDIX A - “QUESTIONNAIRE”

    ABSTRACT

    The study examined the effect of investors’ sentiment on stock market return in Nigeria with consideration to bull and bear market cycles which most past studies neglected. The dependent variable was proxy by Stock Market Returns (SPR) while the explanatory variables were investors sentiment (SentPCA), Interest Rate(INTR), Inflation Rate (INFL) and Exchange Rate (EXRT), while bull events (positive market returns) and bear market event (negative market returns) were used as moderating variables to investors sentiment. In this study, quarterly data from 1985Q1 to 2014Q4 were collected from secondary sources such as CBN, NSE and SEC while in the estimation of the models formulated, statistical techniques which include descriptive statistics, correlation analysis, unit root test, Engel-Granger co-integration test, overparameterized and Parsimonious error correction model (ECM) were adopted. The results from the study show that investors’ sentiment had a statistically significantly relationship with stock market returns dynamics in Nigeria but when moderated for bear market cycle, the impact of investors sentiment on stock returns in Nigeria became statistically insignificant. In the case of Bull market cycle, it was observed that there was a statistically significant relationship between investors’ sentiment and stock market returns. We also found that exchange rate variation was more potent in distorting stock market returns dynamics in Nigeria than interest rate and inflation rate. Notably, inflation rate was found to have less value relevant to equity investors in Nigeria. This study therefore makes the following conclusions that investors in Nigeria’s equity market are likely to take market sentiment news and exchange rate announcement more serious than interest rate and inflation rate when investing in shares. During the bear market cycle, most equity investors would completely try to stay off the market waiting for another bull market run. The study recommends that investors and capital market participants should develop strategies for managing sentiment while policy market should develop policies that would prevent extreme market sentiment and also maintain stable exchange rate and interest rate environment that promote less volatile stock market.

    Effect of Investors‘ Sentiment on Stock Market Returns in Nigeria

    CHAPTER ONE

    Introduction

    Stock market prices both in developed and emerging countries are generally believed to be responsive to economic and market fundamentals or new information. The event of 2008/2009 market crashwhich led to a wide deviation of stock prices from their fundamental value is generating questions and drawing attention to finding out if non-market and non-economic fundamentals are responsible for such deviations. The determination of equity price movement in most emerging stock markets has been discussed by scholars and researchers from the perspective of market, economic and firm-specific fundamentals.However, there has been some kind of shift in the discussion of equity price movement to favouringinvestors‘ sentiment/emotions. Investors‘ sentiment in general term refers to the attitude, emotions and biases that exhibit in the course of investment decision. Baek, Bandopadhaya and Du (2005) studies revealed that most short-term movements in asset prices such as equity are best explained by investors‘ sentiment. Similarly, Fisher and Stantunan (2000)are also of the view that investors‘ sentiment matter to asset pricing process.

    Thus, in the pricing of equities and other financial assets, investors‘ attitude is of major concern for financial analyst and it is seen as a key determinant of the value of most financial assets (Huiwen, 2012). Baker and Wurgler (2006) recognized investors‘ psychology as a vital component in market pricing process of financial assets. This is because the sentiment of investors‘ may also reflect their risk profile and investors‘ emotion are displayed in different forms. In behavioural finance, emphasis is placed on investors‘ sentiment/bias such as escalation, cognitive dissonance and overconfidence bias. Escalation bias tend to exist when an investor continue to purchase a poor performing stock with the notion that the stock poor performance is temporary, this single act of investors‘ can influence the price of the stock in question positively since the investors‘ are not selling even when bad news enter into the market. In the case of cognitive dissonance the investors‘ act only when market information conforms to his belief. This therefore means that equity price moves only when the investors‘ interpretation of an event negates the market news. Shefrin and Statman (1996) stressed that prices of equities and other financial assets are determined by the level of confidence investors‘ have on the growth of a company. The investor commits overconfidence bias when he/she overestimates the growth rate of a company and concentrates on good news and this has great influence to the determination of financial assets prices.

    …

    CHAPTER TWO

    2.0 Literature Review

    2.1 Introduction

    This chapter focuses on the review of related literature. A literature review includes the current knowledge as well as theoretical and methodological contributions to a particular topic. It documents the state of the art with respect to the topic you are writing. It surveys the literature in the topic selected. In this research work the literature review includes the …

    Summary Headlines for Effect of Investors‘ Sentiment on Stock Market Returns in Nigeria