Markov Chain and Stock Price Movement in Nigeria (1985-2013)

Abstract

The share prices of the stock market are volatile in nature. Investors are at risk without an in-depth knowledge of the operations of the stock market. We used regression analysis to ascertain the relationship between the movement of share prices and economic growth. A regression model was developed to capture the effect of the movement of share prices in the Nigerian stock exchange market on economic growth. Markov chain was used to find effect of the share prices. The results show that in the long run the increase and decrease in the share prices will become stable with probability of 0.665and 0.335 respectively.