Fundamental Determinants of Share Prices in Nigeria

Abstract

This study examined the extent to which share prices are determined by changes in fundamental factors (macroeconomic factors, industry factors and firm specific factors). Secondary data on the six macroeconomic factors including exchange rate, inflation rate, interest rate, gross domestic product, broad money supply and oil prices, three industry factors including sensitivity to business cycle of an industry, profit potential of an industry and structure and characteristics of an industry and six firm specific factors including earnings per share, dividend per share, return on assets, liquidity, leverage and size of a firm from year 2010 to 2016 were employed. The stepwise multiple pooled regression method was used to select from the macroeconomic factors, industry factors and firm specific factors the most significant factors that have significant impact on share prices. The findings of the study revealed that only earnings per share has significant impact on share prices in Nigeria. The study concluded that the major fundamental determinant that has impact on share prices in Nigeria stock market is earnings per share. The study then recommended that quoted firms in the Nigeria stock exchange market should be encouraged as a policy to release and submit quarterly figures of their financial position most especially earnings information