SHARE PRICE MOVEMENT AND INSIDER INFORMATION IN THE NIGERIAN STOCK MARKET
ABSTRACT
     The study examines the effect of insider trading on stock returns in the Nigerian stock market. It is argued that if the market is inefficient, insider information may play a big role in determining stock behaviour in Nigeria. Thus, the study evaluates the efficiency of the Nigerian stock market by considering the effect of news on stock returns for some selected companies in the Nigerian stock exchange. An event study was carried out to examine these relationships. The market model was adopted in the empirical analysis because of its easy adaptability to different types of events. Results from the empirical analysis show that we can reject the null hypothesis that there is no difference between the cumulative abnormal return and zero for stock prices during the earnings announcement periods. Specifically, the findings indicate  stock prices tend to rise during the earnings announcement period periods, the pattern of stock price behaviour tends to change significantly around earnings announcement periods, news about earnings announcement has a significant impact on returns on the stocks in the Nigerian stock exchange, insider information has a significant impact on stock returns in Nigeria and that stock prices for some banks seem to be the most affected than others by earnings announcement.
TABLE OF CONTENTS
CHAPTER ONE
INTRODUCTION
1.1    Background of the study    -    
1.2    Statement of Research Problem    -    
1.3    Objectives of the Study        -
1.4    Research Hypothesis              -    -    
1.5    Significance of the study            -          
1.6      Scope of the Study                       -         -           -          
1.7      Limitation of the study              -         
CHAPTER TWO
LITERATURE REVIEW
2.1    Introduction          
2.2      The Efficient Market Hypothesis    
2.2.1    The Weak-Form Efficient Market Hypothesis    
2.2.2   Semi Strong Efficiency    -    
2.2.3    Strong Form Efficiency   -    -
2.3    The Nigerian Capital Market    -    
2.4    Insider Dealings-Who, What, How
2.4.1    Who is an Insider    
2.4.2    How Does Insider Dealing Work?    
2. 5    Insider Dealing and Regulations    
2.6    Sanctions on Insider Dealings    -    
CHAPTER THREE
METHODOLOGY OF THE STUDY    -
3.1    Introduction    -    -    -    -    
3.2    Event Study Specifications    -    -    -    
3.3    Model specification    -    -    -
3.3.1    Normal Returns    -    -    -    
3.4     Testing Procedure    -    -    -
3.5    Estimation of the Market Model Parameter     -
CHAPTER FOUR
EMPIRICAL ANALYSIS
4.1    Introduction    -    -
4.2    Statistical Analysis        -    
4.3    Econometric Analysis    
4.3.1  Empirical Analysis of the Cumulative Abnormal Returns  
CHAPTER FIVE
SUMMARY, RECOMMENDATIONS AND  CONCLUSION          
5.1    Summary of Findings    -    
5.2.    Recommendations    -    -    
5.3    Conclusion    -    -    -    
References    -    -    -
Appendix   -    -    -    -    -    -    -    -    -
CHAPTER ONE
INTRODUCTION
1.1    BACKGROUND TO THE STUDY
           It is widely believed that no market strictly meets the conditions of the efficient market hypothesis. Even in the most developed countries, information with no bearing on the future performance of companies do sometimes influence the share price. In such instances, stocks prices do not reflect the true value of securities.
          An efficient market is generally regarded as one in which share prices fully reflect all available information on the company.  It is therefore expected that in an efficient market, information will be quickly and widely disseminated as well as cheaply available to all investors. Markets can be efficient with respect to some kind of information but not others.  For example prices may fully reflect "publicly available" information but not reflect information possessed only by those very close to the corporation (e.g. the firms directors and top executives).
           Price changes would occur only at the break of new information to the market which could affect future profitability of the company and consequently future dividends. Market prices on the secondary market are continuously changing. Factors which may influence the movement of share prices on the stock markets can be categorized into three areas (SEC, 2001).
(a)    Macro Factors: This relates to a nations economy and political state. These factors affect the entire market and are usually evident in the movement of stock market indices.
(b)    Micro Factors: This relates directly to the features and conditions of a particular company or industry securities and not the entire market.
(c)    Other Factors: Beside the factors that relate directly to the development in the quality or performance of the company, many other intervening factors which should not affect investors confidence do so in reality. These subjective variables are probably more noticeable in emerging markets, where not many people are vested in capital market matters. Such factors are investors psychology, the activities of speculators and the use of insider information (insider dealings).
            It is generally accepted that insider dealings is an unethical market behavior which threatens confidence in the stability of a capital market. In many countries, Nigeria inclusive, insider dealing is considered an offence which attracts stiff penalties. Very little is known about this crime even by those who are most susceptible to committing insider dealing offences.
Global experience has shown that directors and top management of quoted companies or their subsidiary companies, issuing house staff, professionals such as auditors as well as substantial stockholders are usually the offenders. In more developed economic systems, the capital formation process depends upon investors confidence in the fairness of the securities market. When committing capital to the securities market, with whom they are dealing with not to make investment decisions on information available only to corporate insiders or fiduciaries or on information wrongly obtained. Investors legitimately assume that market supply, demand and price are accurate reflections of the investing public's valuation of each particular security. Insider trading in essence compromises these expectations and assumptions which therefore undermines the investors’ confidence which is essential to a system of efficient capital formation.
Trading while in possession of such information is a violation of that duty and a fraud on those investors on the other side of the transactions (Akinlolu, 2002). The practice of insider dealings (use of insider information) in the Nigerian capital market is silent, in the sense that even though such practices happen, they are generally very difficult to prove. This erosion of investors confidence in market integrity discourages participation in the securities market place. In addition to threatening the integrity of the securities markets, insider information is again, a fraud on individual investors and those with whom they conduct securities transactions. In many cases especially those involving tipping, only individuals with direct knowledge of the relevant information and other significant events are the wrong doers themselves and these individuals would be unwilling to corporate with investigators. As a result, insider trading cases can often be made only through indirect evidence of the fraud.
Circumstantial evidence then becomes very important. For example, a timely transaction in a stock shortly before a  significant public announcement concerning the issuer of that stock, may help support an interference that  the purchase had price sensitive information especially if it can be shown that such a purchase was a first time one or unusual. Similarly, an abnormal concentration of trading in companies represented by a particular law firm, investment banker or accounting firm may support an interference that the purchases was tipped by someone within that firm. A motive for tipping can be established by showing that an individual with non-public information was in a position to benefit by communicating that information to the trader.
1.2     STATEMENT OF THE RESEARCH PROBLEM
           Capital market is information driven. It is information that determines whether the price of a stock will rise or fall. In the Nigerian capital market, there is lack of flow of information and this can be attributed to the inefficiencies and inadequacies of the management of the Exchange and the stock market itself. It is often argued that share prices do not reflect all available information in the Nigerian capital market. The implication of this inefficiency is quite obvious in terms of the sub optimum performance of the stock exchange in the process of capital formation. This acts as a disincentive to investors who may want to maximize returns from exchanging their holdings as frequently as the market conditions permit. The purpose of this study therefore is to investigate and determine the existence of insider information in the Nigerian stock Exchange and its effects on share price movement in the recent past, in the Nigerian stock market.
1.3      OBJECTIVES OF THE STUDY
    The objectives of the study are;
(a)  To determine whether insider information exist at the Nigerian Stock exchange
(b)   To determine the sources of insider information on the floor of the Nigerian Stock Exchange.
(c)    To determine the effect of insider information on share prices in the Nigerian Stock Exchange.
1.4     RESEARCH HYPOTHESIS
            In order to provide the basic framework for this research, the following hypothesis is formulated
            Ho: insider information does not exist in the Nigerian Stock Exchange.
            H1:  insider information exists in the Nigerian Stock Exchange.
            Ho: insider information does not affect share price at the Nigerian Stock Exchange.
           H1: insider information affects share price at the Nigerian Stock Exchange.
1.5   SIGNIFICANCE OF THE STUDY
         It is expected that the information gained through this study will assist in knowing whether insider information affect the movement of share prices and also provide useful information on how to regulate and deal with the insider dealings.
1.6     SCOPE OF THE STUDY
           This study is aimed particularly at discovering how the use of insider information influences the movement of share price in the Nigerian Stock Exchange.
1.7      LIMITATION OF THE STUDY
For the purpose of accuracy and proper study, the researcher limits himself to study the effects that insider information may have on stock prices in the Nigerian stock market using earnings announcement by banks in Nigeria. Some banks were selected because it would almost be impossible to cover a wide range, considering the financial and information incapacitation of this study.
The study is also limited by scarcity of the relevant data; there are also time constraints. And also, the attempt to get secondary information is partly inhibited by bureaucracy at offices where data would have been collected.