ABSTRACT
Using Nigeria level data for 26 years: 1986-2011, the study the impact of financial on stock market efficiency in Nigeria. The study used the Generalised Least Square (GLS) to estimate the four hypotheses formulated for the study.
The ratio of stock market to gross domestic product, ratio value of traded to gross domestic product, ratio of all share index to gross domestic product,
and ratio of value of shares traded to market capitalization were adopted as the dependent variables, while the independent variable was financial liberalization (percentage in foreign equity ownership).
The study also controlled for some macroeconomic variables such as exchange rate, inflation rate and interest rate that might impact on the dependent variables.
The results showed that the regression coefficient for financial liberalization was negative and non-significant in predicting or promoting four proxies of stock market efficiency, which supports the preposition that financial liberalization does not transform or promote stock market efficiency.
Based on the results, the study recommends inter alia: promotion of favourable macroeconomic environment; formulation of policies that will reduce the impact of speculative hot money, strengthening of the legal system,
stronger transparency in terms of information disclosure, the need for the establishment of effective and efficient Dispute Resolution Mechanism, the urgent need to rethink the tenure of the market; among others.
TABLE OF CONTENTS
Title fly- – – – – – – – – – i
Title page- – – – – – – – – – ii
Approval page- – – – – – – – – iii
Declaration – – – – – – – – – iv
Dedication- – – – – – – – – – v
Acknowledgements- – – – – – – – – vi
Abstract- – – – – – – – – – vii
Table of Contents- – – – – – – – – viii
List of Tables – – – – – – – – – xi
List of Figures – – – – – – – – – xii
List of Appendices- – – – – – – – – xiii
CHAPTER ONE: INTRODUCTION
1.1 Background of the Study 1
1.2 Statement of Problem 9
1.3 Objectives of the Study 12
1.4 Research Questions 12
1.5 Research Hypotheses 12
1.6 Scope of the Study 13
1.7 Significance of the Study 14
References 16
CHAPTER TWO: REVIEW OF RELATED LITERATURE
2.1 Introduction 20
2.2 Financial Market Liberalization 25
2.3 Financial Globalization 33
2.4 Capital Market Efficiency 38
2.4.1 Efficient Market Hypothesis (EMH) 38
2.4.2 Weak-Form Market Efficiency 40
2.4.3 The Random Walk Hypothesis 41
2.4.4 Semi-Strong Form Efficiency (Event Studies) 45
2.4.5 Strong Form Efficiency (Private Information) 46
2.4.6 Fundamental or Intrinsic Value Analysis 46
2.4.7 Technical Analysis or Chartist 48
2.5 The Nigerian Economy 48
2.6 The Nigerian Capital Market: Structure, Performance and Regulation 52
2.6.1 Structure of the Nigerian Capital Market 52
2.6.2 Performance of the Nigerian Capital Market 54
2.6.3 Regulations of the Nigerian Capital Market 56
2.6.3.1 Securities and Exchange Commission (SEC) 56
2.6.3.2 The Nigerian Stock Exchange (NSE) 57
2.7 Review of Empirical Literature 57
2.7.1 Random Walk Hypothesis 57
2.7.2 Tests of Random Walk 59
2.7.3 Market Opening 60
2.8 Recursive Residuals 61
2.8.1 Variance Ratio Tests 62
References 64
CHAPTER THREE: RESEARCH METHODOLOGY
3.1 Research Design 78
3.2 Nature and Sources of Data 78
3.3 Population and Sample Size 79
3.4 Description of Research Variables 79
3.4.1 Dependent Variables 79
3.4.1.1 Stock Market Capitalization Ratio (Market Size) 79
3.4.1.2 Value of Shares Traded Ratio (Market Activity) 80
3.4.1.3 Stock Turnover Ratio (Market Liquidity) 80
3.4.1.4 All Share Index (ASI) 81
3.4.2 Independent Variable 82
3.4.2.1 Stock Market Liberalization 82
3.4.3 Control Variables 82
3.4.3.1 Interest Rate 82
3.4.3.2 Exchange Rate 84
3.4.3.3 Inflation Rate 84
3.5 Techniques for Analysis 84
3.6 Models Specification 86
References 88
CHAPTER FOUR: DATA PRESENTATION AND ANALYSIS
4.1 Data Presentation 92
4.2 Determination of Research Variables 97
4.2.1 Market Capitalization Ratio (Market Size) 97
4.2.2 Value of Shares Traded Ratio (Market Liquidity) 99
4.2.3 Turnover Ratio (Market Activity) 101
4.2.4 All Share Index Ratio (Market Performance) 103
4.2.5 Control Variables 105
4.3 Descriptive Statistics 107
4.4 Correlation Matrix 109
4.5 Test of Hypotheses 110
4.6 Robustness Test 115
References 117
CHAPTER FIVE: SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATIONS
5.1 Discussion of Research Findings 119
5.2 Conclusion 122
5.3 Recommendations 123
5.4 Recommended Areas for Further Studies 125
5.5 Contribution to Knowledge 125
References 127
Bibliography 128
Appendices 145
INTRODUCTION
The issue of market efficiency, as espoused by Fama (1965, 1970), which posits that prices fully reflect available information has remained at the heart of financial economics literature.
Lim and Brooks (2011), state that the efficient market hypothesis defines an efficient market as one in which new information is quickly and correctly reflected in its current security price.
Generally, the argument is based on the assumption that at any given time, prices of stocks fully reflect all the available information related to them. This is the path toed by Marashdeh and Shrestha (2008), Maghyereh (2003
), Bashir, Ilyas and Furrukh (2011), among others.
For the market to be efficient, the prices of stock must reflect company fundamentals, state of the economy and most importantly, the law of demand and supply, which can only come to fruition through liberalising the stock market (Kawakatsu and Morey, 1999; Waliullah, 2010).
Proponents of this theory have documented extensive evidence to show that financial liberalization promotes stock market development (Ortiz, Cabello and Jesus, 2007).
Against this background, the effects of financial liberalization on stock market efficiency has remained a core issue in finance literature,
more so, considering efforts by governments especially in the developing countries to liberalize their financial markets in order to catch up with the developed countries on one hand and to integrate their economies to the global economy on the other.
The impact of financial liberalization on the stock returns and volatility is an important issue for researchers, regulators and investors (Nazir, Khalid, Shakil and Ali, 2010).
REFERENCES
Adeyemo, D. O. & Salami, A. (2008). A review of privatization and public enterprises reform in Nigeria. Journal of Contemporary Management Research, 4(4): 401-418.
Agbetsiafa, D. K. (1998). Financial intermediation under information asymmetry: Implications for capital market efficiency in selected developing countries. Journal of Managerial Finance, 24(3): 62-73.
Alabi, M. O., Onimisi, U. U. & Enete, C. (2010). Privatization of public enterprises and Nigeria sustainable development (a review article). Current Research Journal of Social Sciences, 2(3): 204-208.
Anyanwu, J. C. (1992). President Babangida’s structural adjustment programme and inflation in Nigeria. Journal of Social Development in Africa, 7(1): 5-24.
Asaolu, T. O. & Ogunmuyiwa, M. S. (2011). An econometric analysis of the impact of macroeconomic variables on stock market movement in Nigeria. Asian Journal of Business Management, 3(1): 72-78.
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