Investigation of the efficiency level of the Nigerian capital market
Date
2021
Authors
Journal Title
Journal ISSN
Volume Title
Publisher
Federal University of Technology, Owerri
Abstract
This study investigated the efficiency level of the Nigerian Capital Market based on changes in daily stock prices of all the listed companies over 19 years period (January, 2000 to December, 2020). The aim is to test the validity of the efficient market hypothesis and its associated anomalies in the Nigerian Capital market. The study employed descriptive statistics (mean, maximum, minimum, standard deviation, and the Jarque-Bera statistics) and inferential statistics (Augmented Dickey-Fuller (ADF), Phillip Peron (PP) Diagnostic Statistics, ARCH (Auto-Regressive Conditional Heteroscedasticity), G-ARCH (Generalized ARCH) models and the variance ratio test). The study found that stock returns in the Nigerian Capital Market exhibits a random walk (1.20+E09, p value (0.0000) < 0.01); (219.6456, p value (0.0000) < 0.01). Also current returns of stock in the market cannot be significantly predicted based on their previous variations (-28.90509 p value (0.0000) < 0.01). Equally it was found that stock returns and its volatility ( = -0.386322, p value 0.0309 < 0.05) are negatively and significantly related. Volatility clustering is found to exist in the Nigerian Capital Market ( + < 1 ie 0.204820 + 0.748592 = 0.953412). Furthermore, investors do not make abnormal returns on Fridays than on other days of the week (-0.000170, p value 0.3211 > 0.05- variance equation), (-0.002440, p value 0.8967 > 0.05-mean equation). This also applies to Mondays (-0.005443, p value 0.0000 < 0.05- Variance equation), (-0.016034, p value 0.1733 > 0.05 –mean equation). Also the study found that investors do not make abnormal returns on the last day of the month (-0.008503, p value 0.0000 < 0.05 –Variance equation), (-0.019911, P value 0.2592 > 0.05 –mean equation). Investors do not make more profit during the sunny days than during the rainy days. (0.000163, p value 0.0358 < 0.05 – Variance equation), (-0.004424, p value 0.6493 > 0.05 –mean equation). Therefore the study concludes that no arbitrage opportunity can be usurped to make excess profits as all the available information has been discounted into current prices. Also, since the Nigerian stock market follows a martingale, fundamental and technical analyses become futile since prediction is not possible. Based on the above conclusion the study recommended that in order to attain an efficiency level of strong form, the Nigerian Capital Market must minimize the level of insider dealing by adopting the policy of full automation of trading activities in the market.
Description
This thesis is for the award of Doctor of Philosophy (PhD.) in Financial Management Technology
Keywords
ARCH, GARCH, martingale, efficiency, volatility, arbitrage, prediction, fundamental, automation, Department of Financial Management Technology
Citation
Onyeanwu, C. C. (2021). Investigation of the efficiency level of the Nigerian capital market [Unpublished Doctoral Thesis]. Federal University of Technology, Owerri, Nigeria