An Empirical Test for Semi-strong form Efficient Market Hypothesis of the Nigeria Stock Market

Abstract

A capital market is said to be efficient if new information are quickly reflected in stock prices.  This study empirically examines how the prices of stocks listed on the Nigerian Stock Exchange quickly respond to monetary policy announcement. The daily All Shares Index and 41 monetary policy announcement from 2014 -2020 were used as proxy for stock prices and new information respectively. The Researcher adopted the event study methodology and a 21 day event window was constructed. That is 10 days before monetary policy announcement (-10) and 10 days after the announcement (+10) in addition to the event day. The average abnormal returns (AAR) and the cumulative average abnormal returns (CAARs) were computed and analyzed using the t-statistic to ascertain whether it is possible to earn abnormal return due to monetary policy announcement. The findings revealed that it was not possible to earn abnormal return due to monetary policy announcement. The implication of this result is that stock prices quickly adjust to new information (monetary policy rate announcement) therefore making it difficult for market participants to outperform the market.Thus, the Researcher concluded that the Nigeria stock market is semi-strong form efficient.