Tests of Random Walk and Efficient Market Hypothesis in Developing Economies: Evidence from Nigerian Capital Market

Azubuike Samuel Agbam

International Journal of Management Sciences, 2015, vol. 5, issue 1, 1-53

Abstract: Stock exchange markets play a critical role in the economies. They facilitate the movement of capital, often aggregating resources of small individual savers into sufficiently large capital sums that can be successfully invested by commercial companies and at the same time provide opportunities for investors to generate returns. Fluctuation in this markets influence personal and corporate financial live and economic health of the country. The debate on random walk hypothesis has been pointed out as dealing with whether or not security price fully reflect historical prices or returns information. This study empirically investigates whether or not stock prices in Nigeria Stock Exchange follow a random walk model so that the price return cannot be predicted from historical price returns. The study employed serial correlation tests and runs tests to analyze weekly price returns for thirty companies whose stocks constitute the component stocks of the Nigeria Stock Exchange. The scope of the study consists of 30 component stocks traded on the floor of the Nigerian stock Exchange. The period covers January 5, 2010 to January 6, 2011. The findings suggest that random walk model is not a good description of successive price returns in the Nigeria Stock exchange, implying that results obtained are contrary to the hypothesis that successive stock prices are independent random variables and also not consistent with efficient market hypothesis.

Keywords: Nigeria; stock market; share price; market efficiency; weak-form hypothesis; random walk; serial correlation; test for independence; runs test. (search for similar items in EconPapers)
Date: 2015
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