IIARD International Institute of Academic Research and Development

INTERNATIONAL JOURNAL OF APPLIED SCIENCES AND MATHEMATICAL THEORY (IJASMT )

E- ISSN 2489-009X
P- ISSN 2695-1908
VOL. 10 NO. 5 2024
DOI: 10.56201/ijasmt.v10.no5.2024.pg74.100

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The Efficient Market Hypothesis and Predictability of Equity Prices/Returns in Nigeria

AGBAM, Azubuike Samuel, ESSI, Isaac Didi, Dagogo, Daibi W.

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Abstract

This study examines the efficiency of The Nigeria Stock Exchange in the weak-form level and the predictability of equity prices/returns using monthly observations. The data set covers the period of ten years- January, 2013 to December, 2022. The stocks were randomly selected based on their ability to trade frequently on the floor of the market, and absorb the shocks of thin trading with irregular hiking. All time-series data were obtained from The Nigeria Stock Exchange database. After testing for normality of the data (the returns of the companies follow normal distribution process), Augmented Dickey-Fuller, Phillips-Perron and Kwiatkowski, Phillips, Schmidt and Shin unit root tests were also employed (which provide evidence that the Nigeria index are nonstationary at level). The study applied various parametric and non-parametric tools which include BDS test, serial correlation coefficient test, runs tests and variance ratio tests. The empirical evidence obtained from these studies are mixed. Indeed, while some studies show empirical results that support the weak form of EMH, other evidences reject the null hypothesis. The Brock-Dechert-Scheinkman and Ljung-Box tests suggest that the return of these companies is not significantly auto-correlated; that successive returns cannot be predicted. The results of the investigation based on runs test confirm evidence of randomness. The variance ratio statistic for each of the company is associated with probability value of 0%. This suggests the rejection of the null hypothesis of sustainable random process. Therefore, our test evidence shows that the returns of these companies are not random; rather stationary and predictable. The policy implication of these analyses is that the Nigeria Stock Exchange, as an emerging market, must be closely monitored to achieve an optimal maturity level. It is therefore recommended that policy makers to enlighten potential investors of the opportunit

keywords:

Efficient market hypothesis, stock return predictability, BDS test, Ljung-Box, Runn test

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