Efficiency of the Nigerian Capital Market; an Empirical Analysis

Ikenna Nneji


This study investigated the efficiency of the Nigerian capital market from 1986 to 2009 through the Random Walk Theory, the rate at which stock information is reflected in stock price and its impact on Nigeria’s economic development. This was done because the capital market has been proven to be a hub and catalyst for economic development of a country. In order to accomplish the set out objectives of this study, three research hypotheses (Ho1 - Ho3) were formulated which were tested via a number of analytical techniques. These are the ADF unit root test, the ARMA Test, the VAR-based granger causality test, the Cointegration analysis and the Vector Error Correction Test. Based on the results gotten, Ho1 was rejected, Ho2 was accepted and Ho3 was rejected. The results revealed that there is still room for improvement of the efficiency level of the Nigerian Capital Market. This was due to the fact that the speed of adjustment of stock price to stock information was not very high and the market was also found to be inefficient within the period under review. The result also showed that a significant relationship exists between capital market performance and economic development. The study ended by recommending that there should be an increased level of public enlightenment on the gains of capital market, an increased level of regulation that would check the vice of all forms of market manipulations and an increased level of operators in the market by relaxing stringent entry requirements of companies. These would increase the efficiency level of the Nigerian capital market enabling it to have an improved impact on the development of the Nigerian economy.

Keywords: Efficiency, Random Walk Theory, ARMA Test, Vector error Correction

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