Abstract
Problem statement: The stock exchange market has been one of the most popular investments in the recent past due to its high returns. The market has become an integral part of the global economy to the extent that any fluctuation in this market influences personal and corporate financial lives and the economic health of a country. The daily behavior of the market prices revealed that the future stock prices cannot be predicted based on past movements. Approach: In this study, we analyzed the behavior of daily return of Nigerian stock market prices. The sample included daily market prices of all securities listed in the Nigeria Stock Exchange (NSE). Results: The result from the study provided evidence that the Nigerian stock exchange is not efficient even in weak form and that NSE follow the random walk model. The idealized stock price in the Nigerian stock exchange is a martingale. Conclusion: Martingale defines the fairness or unfairness of the investment and no investor can alter the stock price as defined by expectation.
Highlights
The stock market forecasting is marked more by its failure than by its successes since stock prices reflect the judgments and expectations of investors, based on the information available
According to Kendal (1953), stock prices following a random walk implies that the price changes are as independent of one another as the gains and losses
This study describes the theory of random walks and some of the important issues it raises concerning the stock market
Summary
The stock market forecasting is marked more by its failure than by its successes since stock prices reflect the judgments and expectations of investors, based on the information available. Fama and French (1988) have argued that there are long term pattern in stock prices with several years of upswing followed by more sluggish periods. According to Fama (1965; 1995), a stock market where successive, price changes in individual securities are independent is, by their definition a random walk market. According to Kendal (1953), stock prices following a random walk implies that the price changes are as independent of one another as the gains and losses. The independence assumption of the random walk model is valid as long as knowledge of the past behavior of the series of price changes cannot be used to increase expected gains
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