An Examination of Stock Market Volatility and Its Effects on Investment Decisions: A Case Study of Nigerian Stocks
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Background of the Study
Stock market volatility refers to the frequency and magnitude of price fluctuations in equity markets. While volatility is a natural aspect of financial markets, excessive or prolonged fluctuations can deter investment and disrupt market stability. In Nigeria, stock market volatility has been influenced by factors such as exchange rate instability, inflation, and policy changes (Eze, 2023).
Investors often perceive high volatility as a sign of uncertainty, leading to cautious or reactive investment decisions. Understanding how volatility affects investment behavior in the Nigerian stock market is critical for fostering a more stable and investor-friendly environment. This study investigates these dynamics, offering insights into mitigating volatility's adverse effects.
Statement of the Problem
Persistent stock market volatility in Nigeria poses challenges for investors and market stability. While some investors thrive on volatility through speculative trading, others, particularly long-term investors, may withdraw from the market due to perceived risks (Okafor, 2024).
Despite its significance, limited empirical studies have examined the specific effects of volatility on investment decisions in Nigeria. This gap hinders the development of effective strategies to stabilize the market and encourage informed investment.
Objectives of the Study
- To analyze the impact of stock market volatility on investment decisions in Nigeria.
- To identify key drivers of stock market volatility in the Nigerian context.
- To propose measures for mitigating volatility and its adverse effects on investments.
Research Questions
- How does stock market volatility impact investment decisions in Nigeria?
- What are the primary drivers of stock market volatility in Nigeria?
- What strategies can mitigate the effects of volatility on investment behavior?
Research Hypotheses
- Stock market volatility significantly affects investment decisions in Nigeria.
- Economic and policy factors are primary drivers of stock market volatility in Nigeria.
- Mitigation strategies can reduce the adverse impact of volatility on investment behavior.
Scope and Limitations of the Study
This study examines the effects of stock market volatility on investment decisions in Nigeria from 2023 to 2025. Limitations include the availability of real-time market data and variations in investor profiles.
Definitions of Terms
- Stock Market Volatility: The rate at which stock prices increase or decrease within a given period.
- Investment Decisions: Choices made by individuals or institutions regarding the allocation of funds in financial assets.
Speculative Trading: Buying or selling financial instruments with the aim of profiting from price fluctuations.
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