On a Semi-Markov Model for Stock Exchange using Capital AssetsShehu

Abstract

This study is aimed at develop a semi-Markov model for stock exchange by using stock values of the Capita 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 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 and that there is hope of recovering for Capital Assets after the experience of unprecedented decline in the stock value in the years 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 higher tendency for stock price to be stable in the long run. The results of the analysis of long run behavior of Capital Assets stock showed that most of these stocks have higher like hood 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 like hood of being stable and the remaining twenty-five percent shows a higher like hood of falling in the long run. This study recommends that government should be making a clear economic policy framework to discourage investors from holding their money in cash or taking them out of the Nigeria markets 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 Nigeria market.