An empirical investigation on efficient market test for the Nigerian stock exchange (NSE)

Tonprebofa Okotori and Peter Ayunku

MPRA Paper from University Library of Munich, Germany

Abstract: This research was an investigation to prove empirically the existence in the Nigeria Stock Exchange (NSE) of the lowest level of efficiency(weak-form). Monthly data on the (ASI) retrieved from NSE that spanned from January 1985 to December 2018 was utilized in the analysis. The revelation of dependence on changes in stock prices show that past information on prices could be utilized in estimating future prices, and this violates what constitutes a weak-form efficient market. Evidence from significant Z-statistics shows the series is non-random and the returns reveal serial dependence. Theforegoing lead to the conclusion that the NSE does not exhibit randomness neither is weak-efficient.Where the price of stocks showed a correlation that is positive and very significantis areflection of the scenario that points to the fact that these stock prices only have a partial impact as regards effect on the deterministic value of stocks that is fair. There is risk mispricing and the wrong allocation of investment capital. There is an implication that investment funds are not channelled into areas where they are most needed and this result in inhibited development and growth in the economy. Existence of non-randomness on the returns of the ASI could be dependent on a "no change" stock prices or "zero returns", and is a product of the preponderance of stocks in NSE's composite ASI that are traded rather infrequently. The results reported in our unique study could be nested on the nature of the environment's available information set that is characterized by poor availability of reliable information and this as a result of the pattern of movement in the composite price index of the NSE.

Keywords: Nigeria Stock Exchange; all shares index; efficient market hypothesis; random walk hypothesis (search for similar items in EconPapers)
JEL-codes: G14 G15 G2 (search for similar items in EconPapers)
Date: 2019-12-04
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Published in IOSR Journal of Economics and Finance (IOSR-JEF) Issue 6 Ser. IV (Nov. – Dec 2019).10(2019): pp. 1-9

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