Fama’s model of efficient market: Analysis of the performance of insurance companies and the insurance stock price movement in Nigeria

Abstract

The study analyzed the performance of insurance companies and the insurance stock price movement in Nigeria using Fama’s model of efficient market approach. Lack of information about insurance stock prices movement can influence investor’s decision making on insurance stock investments. An ex post facto research design was employed in the study. The research covers the activities of 19 insurance companies that are listed on the Nigerian Stock Exchange as at December 31, 2022. The data sample of the study comprises of daily stock prices data of 19 listed insurance companies for the period January 4, 2022 December 30, 2022. Fama-French three factor coefficient estimates obtained from quantile regression was used to test the hypothesis. The results revealed that there is a significant relationship between the insurance stock price movement and the performance of insurance companies in Nigeria, and that such relationship is negative. Recommendations were that there should be perfect information about stock market forces of demand and supply because if there is information asymmetry through which borrowers (securities issuers) know more about the risks than the lenders to (securities purchasers), the market participants may be reluctant to trade with insurance stocks, whose characteristics and behaviour under varying economic conditions are not well known. Also, it is important for the regulator in formulating policies that encourage diversification of investments among others.