Application of Panel Approach to Share Price Modelling in the Nigerian Banking Sector

Abstract

The study examined the application of panel approach to modelling of share prices in the Nigerian banking sector. The study ascertained both company specific factors (earnings per share, price earnings ratio and return on asset) and macroeconomic factors (gross domestic products and inflation rate) that determined share price performance in five selected banks. Annual reports of the selected banks and the Statistical Bulletin of Central Bank of Nigeria (CBN) from 2006 to 2015 were used to extract the needed data for the study. The model specified for the study was estimated using panel data regression approach. The study found that earnings per share and inflation rate have statistically significant relationship with share prices of the selected banks. However, price earnings ratio, return on asset and gross domestic product do not have any significant relationship with share prices. Earnings per share and return on asset have positive relationship with share prices while the relationships among the remaining variables (price earnings ratio, gross domestic products and inflation rate) and share prices are negative. It is recommended that present and future investors in the Nigerian banking sector should be guided by the earnings per share of any banks they intend to invest in and rate of inflation in the country.