The 1st Week of Extended Trading Hours & its Impact on the Nigerian Stock Market

The extension of the NSE trading hours was implemented on December 6, 2010. Mr. Emmanuel Ikhazoboh, the interim Director General of the Nigerian Stock Exchange (NSE), disclosed to Reuters that the exchange’s motive of extending the trading hours was to boost liquidity, as well as attract more foreign investments into the Exchange. Although it is too premature to judge the success of the extension, but it is pertinent to perform a cursory review of what impact the first week of the extension had on the market. However, it is important to state that I am not representing that in the long-run the extension will not work, but the first week have shown that the extension is not the primary factor that will get the NSE out of its current morass.

Let us look at a few facts:

All Share Index

In a week when the NSE increased the trading hours by 2 hours, giving traders an additional 10 hours of trading time for the week  ended Dece3mber 10, 2010, the all share index lost 362 or 1.5% as shown in the graph below:

In monetary terms the all share index lost N65.7 billion for the week,  and  a review of three sectors (Banking, Breweries, and Building Materials) revealed that of the twenty eight (28) listed stocks in the three sectors, only six (6) stocks reflected minor gains for the week as highlighted in the schedule below:

Pre & Post Extension of Trading Hours Volume Comparison

For the week ended December 3, 2010, the combined five (5) days trading volume at the NSE was  1,192,384,466, but for the week ended December 10, 2010 (i.e., 1^st week of the extension of trading hours), the combined five (5) days trading volume at the NSE was 1,353,436,718. Reviewing both weeks (i.e., the last week of pre-extension trading period and the first week of the extended trading era), the first week of the extension era showed an increase of 161,052,252 or 14% in trading volume. Averaging the increase in trading volume for the week, translates to approximately 32.2 million shares traded per day more than the prior week.  The trend of daily trading volume for the last two (2) weeks of trading is highlighted below:

 Although, some traders/brokers and NSE administrators who support the extended trading hours might be fast to note that the increase in the daily trading volume during the first week of the extension is a sign of success. However, if you review the average daily trading volume for the last 30 days prior to the implementation of the new trading hour, it shows that the daily trading volume was approximately 364 million exceeding 270.6 million, the average dailing trading volume for the first week of the extension.

 Conclusion

As previously noted, although it is too early to judge the success of the trading hours extension based on only the first week of trading, but it is obvious that the trading volume, price trend and All NSE share value and index were not positively impacted by the extension. I believe that the NSE should have worked on improving the liquidity of the exchange before extension of trading hours. In an article I wrote in November 2009 “Creating Liquidity for the Nigerian Stock Market” I listed some measures that should be taken to improve liquidity at the exchange.