Abstract
This research empirically tested the weak-form efficient market hypothesis of the
Nigerian Stock Exchange (NSE) by hypothesizing normality of the return
distribution series, random walk assumption and efficiency across time. Monthly
all share indices of the NSE were examined for normal distribution and random
walk from January 1993 to December 2007, as well as two sub-periods of
January 1993 to December 1999 and January 2000 to December 2007. Our
normality tests were made using skewness, kurtosis, Jarque-Bera and
studentized range tests; whereas weak-form efficiency was tested using the nonparametric
Runs test for both total and sub-sample periods.
The monthly return series, in aspect of skewness and kurtosis, were found nonnormal,
which can be categorized as negative skewness for all periods and
playtykurtic distribution for total sample and sub sample2, while sub-sample1
showed leptokurtic distribution. Same thing resulted from J-B test and
studentized range. As a result, null hypothesis of normality in market returns was
rejected and the alternative hypothesis remained in effect. The results of the
Runs test for the observed returns show that the actual number of runs were
fewer than the expected number of runs for all periods examined, thus indicating
evidence of positive serial correlation in NSE monthly returns. The research
further provided evidence to show that improvements in market microstructure of
the NSE have positive effects on the weak-form efficiency of the NSE. Overall
results from the empirical tests suggest that the NSE is not weak-form efficient.
Relaxing institutional restrictions on trading securities in the market and
strengthening the regulatory capacities of NSE and Nigerian Securities and
Exchange Commission to enforce market discipline were recommended.
