ABSTRACT

Abstract

This study is aimed at developing a semi-Markov model for stock exchange by using stock values of the Capital Assets for both opening and closing price for the year 2014 to predict stock movement. In particular, we analyzed high frequency data from the Nigerian stock market from the first of January, 2014 until end of December, 2014 and we applied to it the semi-Markov chain model using exponential distribution. It was established that the closing prices were not independent and that the daily closing prices depends on the subsequent daily closing prices and that there is hope of recovering for Capital Assets after the experience of unprecedented decline in the stock value in the year’s past. Probability of the stock to be stable in the long run is higher than that of rising and falling respectively. This is an indication that there is a high tendency for stock price to be stable in the long run. The results of the analysis of long run behaviour of Capital Assets stock showed that most of these stocks have higher likelihood to increase in price. It was concluded that fifty percent of the stocks show a higher tendency of increase in price, twenty- five percent shows a higher likelihood of being stable and the remaining twenty- five percent show a higher likelihood of falling in the long run. This study recommends that government should make a clear economic policy framework to discourage investors from holding their money in cash or taking them out of the Nigerian market for safety, Central Bank of Nigeria should be able to establish foreign exchange management programme to control liquidity in the foreign exchange market and the model developed in this study should be implemented in predicting the long-term behaviour of the stock value price in Nigerian market.

Keywords: Bear market, stagnant market, bull market, blue chips, bonus, base price