TAILIEUCHUNG - Determinants of Equity Prices in the Stock Markets

A number of models developed for asset pricing are two variable models. For instance the Capital asset pricing model (CAPM) developed by Sharpe (1964) considers the risk-free return and volatility of the risk-free return to market return as the determinants of asset price. Asset price as described by CAPM is linearly related to the two independent variables. Many studies have concluded that over the years assets were being underpriced (Smith, 1977; Loderer, Sheehan & Kadlec, 1991) and this raises the question of the adequacy of the various asset pricing models to ensure efficient asset pricing. Brav & Heaton (2003). | International Research Journal of Finance and Economics ISSN 1450-2887 Issue 30 2009 EuroJournals Publishing Inc. 2009 http Determinants of Equity Prices in the Stock Markets Somoye Russell Olukayode Christopher Dept. of Banking Finance Faculty of Management Science Olabisi Onabanjo University Ago Iwoye Nigeria . Box 1104Ijebu-Ode Ijebu-Ode Ogun State Nigeria E-mail kayodesomoye@ Akintoye Ishola Rufus Dept. of Accounting Faculty of Management Science Olabisi Onabanjo University Ago Iwoye Nigeria E-mail irakintoye@ Oseni Jimoh Ezekiel Dept. of Banking and Finance Faculty of Management Science Olabisi Onabanjo University Ago Iwoye Nigeria E-mail zikoseni@ Abstract Brav Heaton 2003 alleges market indeterminacy a situation where it is impossible to determine whether an asset is efficiently or inefficiently priced in the stock market. Kang 2008 argue that empirical tests of linear asset pricing models show presence of mispricing in asset pricing. Asset pricing is considered efficient if the asset price reflects all available market information to the extent no informed trader can outperform the market and or the uninformed trader. This study examined the extent to which some information factors or market indices affect the stock price. A model defined by Al-Tamimi 2007 was used to regress the variables stock prices earnings per share gross domestic product lending interest rate and foreign exchange rate after testing for multicollinarity among the independent variables. The multicollinarity test revealed very strong correlation between gross domestic product and crude oil price gross domestic product and foreign exchange rate lending interest rate and inflation rate. All the variables have positive correlation to stock prices with the exception of lending interest rate and foreign exchange rate. The outcomes of the study agree with earlier studies by Udegbunam and Eriki 2001 Ibrahim 2003 and Chaudhuri and .

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