ABSTRACT

Abstract

Market prices of shares (SP) are rarely the same with their intrinsic value; the difference being share price dispersion (SPD). The effect of SPD, either overvaluation or undervaluation is suboptimal allocation of resources. Therefore, this study seeks to identify the causes of SPD in capital markets for policy attention. Regression model, estimated at 5% level of significance using generalized least squares (GLS) and stepwise estimation techniques, was employed to ascertain relevant determinants of SPD. The sample consists of seventy-two dividend-paying firms listed on the Nigeria Stock Exchange (NSE) between 2000 and 2011[i]. Based on theories and empirical literature, the explanatory variables were accounting variables and disclosure indices derived from annual reports as well as macroeconomic variables extracted from 2012 edition of Statistical Bulletin of CBN. Intrinsic values (INTVAL) were estimated using Dividend Share Valuation Model while SP data were collected from Daily Official Listings of NSE. The findings suggest that the level of economic activities, exchange and interest rates in the economy, firm performance as well as information disclosure are factors that could make SP to be substantially different from its INTVAL. Therefore, regulatory authorities should address the identified determinants to prevent economic wastage of scarce resources.

Keywords: Market Price; Intrinsic Value; Share Price Dispersion; Dividend Share Valuation Model; NSE.