CHAPTER 1

Introduction

The financial world most popular debate in recent time is the efficient market hypothesis. There are so many research carried out all over the financial market in the world. The argument about if markets are efficient or not, has been the subject matter of every financial investor. With so many evidences from different researchers the efficient market is still under constant scrutiny. In the developed countries like the US, UK, Germany, Japan, Italy, and France to mention a few have been investigated at some point and the states of the market have been documented. Some evidences shows that the idea behind the efficient market hypothesis is not true and that the financial market can be played by some few smart financial analysts but the proof for this counter hypothesis is only a handful.

The evidence of the market efficiency is most popular in the developed market. The evidence that the market adequately reflect information in the prices of stock is documented in numerous research works. The efficiency is categorised under weak-form, semi strong-form and strong-form. Most of the market are tested for one of the forms and result show that most developed markets are weak- form efficient but there is no a lot of evidence that any market is strong form efficient. However research are been carried out to investigate any market that shows this characteristic.

Purpose of Research

The Nigeria market is among the developing economies popularly known as emerging market. The interest of most investors now is to look for investment opportunities in these markets so as to invest their money for good returns. For so long the African market has been ignored due to its high risk and volatility as a result not a lot of research has been documented about the market in the region. It will help develop the financial system in the region if more investigation is carried out in the region. The purpose is to investigate like other work if the market is efficient in the weak form.

The other question that this work is said to answer is if there is the presence of any calendar anomalies in the market. Calendar anomalies are financial phenomena that exist in almost every market if properly investigated. Every economy operates under different rules and like every different individual so are the financial market differs from each other. Generally most market is seen to have Monday effect that is the returns on Monday is considerably higher than other days of the week, and returns on Friday is lower than the rest of the week. Also the January effect is seen to exist in some market. But as more research were done it became obvious that other markets exhibit different kind of calendar anomalies. Nigeria like every other emerging market has its own peculiarity.

Aims
  • To investigate the state of efficiency of the Nigerian stock market
  • To test for the presence of calendar anomalies in the market
Shape of report

Theories of the efficient market hypothesis and calendar anomalies were reviewed in chapter two of this thesis, other research work showing evidence for support or otherwise for the theories and other empirical result were also included in this chapter. Following this chapter is the chapter which explains the Nigerian economy and the Nigeria capital market and it operation, its revolution and the changes over the years since it first began in the 1960s.Chapter four is the methodology, here the types of research, problems faced, research style chosen, hypothesis, research question, method of analysis and data source is explained. Chapter five is for analysis and findings. Here the actual analysis and test were carried out and the result recorded. The discussion of the findings and answer to the research question is obtained. Comparison of the result in terms of theory and previous empirical research was done. The last chapter is for conclusion; here evaluation of the hypothesis, limitation of the research, recommendation and for further work is also suggested.

CHAPTER 2

Literature Review

Theory

The idea behind efficient market hypothesis is the kind that has gone through so many schools of thoughts. As the world Economy faces so many challenges, sometimes the idea that the markets are efficient or not calls for a great deal of research. Among others, one of the accepted academic materials is the Eugene Fama (1970). He argued that securities markets were extremely efficient in incorporating information about individual stocks and thereby reflecting this information in the prices of the stocks and the stock market as a whole.

The idea is that no matter how fast news changes, its effects are quickly reflected in the stock prices. Many investors try to look for securities that are undervalued and are expected to increase in value in the future and to earn more than others. They use various forecasting and valuation techniques to help them select the kind of securities that will satisfy their quest. The conclusion is that with the use of other tools that helps to further analyse the market such as technical analysis and fundamental analysis, it shows market efficiency can not be overemphasized.

Results of various market and economy

Technical analysis is of the motion that the study of past prices of the stock can be used to predict the future price of the stock. Lo and Mackinlay (1998, 1999) showed that in United States, historical prices of stock is reflected in today's price. Hodrick (1987) and Frankel and Foot (1987) rejects the concept of Efficient Market Hypothesis in foreign exchange market. Davidson and Schwarz (1999) applied trading rules to Nasdaq stocks. They deduced that such trading rules do not enhance the returns; however the ones on historical price in overall Nasdaq index earned abnormal returns.

Technical analysis is fundamentally follows the principles of plotting the market price of shares over a period of time; the process is popularly known as Chartism. The concept is that at some point the chart will begin to show some repeated pattern. This shows that the market can be predicted over a period of time simply because the repetition in the chart can be used to outsmart and predict market price. The Technical analysis helps to prove that the concept of EMH to an extent is not always true. While some markets behave differently from others is based on its nature and the volatility. Others include those of Treynor and Ferguson (1985), Brown and Jennings (1989), Jagadeesh and Titman (1993), Blume et al (1994), Lo and Mackinlay (1997), Grundy and Martin (1998) backed technical idea. In the Swiss stock market it was discovered that the transaction cost discourages technical trading profit. But large investors can benefit from moving average trading rules. Ratner and Leal (1999) were able to show that Taiwan, Thailand and Mexico were markets where Technical trading strategies can outsmart the market.

The efficient market hypothesis argues to a great extend that the stock prices moves in a random pattern. It is commonly known as the "random walk". The concept is that if information is incorporated as quickly as possible into the stock prices, then each day's price is independent of the previous day's price, and as the information changes by the day, so is the price adjustment to balance up for the new information. Benjamin Graham (1965) put it forward that looking at the stock market in different duration of time it gives different reactions.

The short run can entertain some form of predictability in the form of voting mechanism but on the other hand in the long run it is a weighing mechanism. Lo, Mamaysky and Wang (2000) were able to show that with the use of some complex statistical methods, such as "head and shoulders" and "double bottoms" used by" technical analysts" some form of predictability can be achieved. The weakness of the short run is enhanced by psychological feedback mechanism adopted by the behavioural finance.

Shiller (2000) describes the rise in the US stock market in the latter part of 1999 as a result of psychological influence which is blown out of proportion. The behavioralist also explain that sometimes when an important news occurs and investors did not react to it as it should the short run mechanism can be affected which means that the information only lasted for a short time, this will force the stock price to react in a positive way. According to Odean (1999) it was suggested that investors who follows the path of the short run momentum do not outsmart the market.

Milton Freidman (1953) works showed that irrational traders are less significant simply because they do not count or survive over a long period of time. Sandroni (2000) and Blume and Easley (2006) helps to point out that with intermediate consumption irrational traders do not last in the long run. Yan (2008) on the other hand argued that only trader with lowest level of "survival index" survives in the long run. With that it means that for survival the trader needs to work with some form such as belief system, patience and risk aversion parameters.

David Lesmond, Michael Schill, and Chunsheng Zhou (2001) discovered that for those who pay transaction cost, the cost to undertake standard "relative strength" makes it unprofitable.The whole concept of the behavioralist and the psychologist is less effective and it is backed by the work of Eugene and Fama (1998) they investigated the work on "event studies" the whole idea is to show if stock prices responds to information such as earnings, stock split, dividends action, mergers and acquisition, new exchange listings, and initial public offerings. Their work revealed that most of the abnormal reactions only occur within a model and that it does not produce the expected return when applied to other models.

Many predictable patterns seem to disappear after they are go public. This is explained by Schwert (2001).One of the reasons he suggested was that it is as a result of people going through a high volume financial data to filter out information that is most important to them. The other reason is that maybe investors quickly learns about any profitably predictable pattern and takes advantage of it till it becomes unprofitable. The equilibrium price is reached before most people take advantage of the situation. In other words the market knows how to take care of it self. One can conclude that the market in sensitive to different activities that goes on.

Random walk Hypothesis is principled on the notion that price follows a random pattern. It shows that price changes of securities can not be predicted from earlier changes in a way that will help outsmart the market. King (1966) was able to put forward that the price in US stock market follows a random pattern. Looking at other markets we sometimes see differences with what happens in their stock markets. Dryden (1970) and Kemp and Reid (1971) investigated the UK non-randomness.

Investigation by Conrad and Juttner (1973) showed that to a great extend the German stock prices is dependent on the past prices. Law (1982) also revealed that large subset of Hong Kong share prices do not obey efficiency principles. Contrarily Gupta (1988) investigated the India stock market and was able to document that the Indian stock market followed a random walk pattern.

Efficient market is needful in the sense that most investors will go to any length to profit from any new information that is available to them. To them identifying both under priced and over priced stock is of immense concern to them as it will help them to buy some stocks for less than the market value and sell other for more than their true market price. This helps them to outsmart the market and make excess profit from the abnormality in the movement of the stock prices.

However as more and more analyst 'comb' the market in search for miss-priced securities, it increases the intensity of competition in the market and as result the probability of finding and exploiting this miss-priced asset is reduced. It is only a hand full of analyst that will be able to find and profit from a miss- priced asset if there is any. For the majority of others the market will dictate the price at which the securities will the traded. At this price every investor will get a fare share of the market usually known as market equilibrium.

The overall analysis of the Efficient Market Hypothesis is divided in three categories according to Fama (1970) The weak form efficient, semi strong form efficient, and the strong form efficient. They all harness the power of information to help deal with the trading of securities in the financial market. When information flows accordingly, each form of the EMH is tested. This is done in different ways with varying financial tools in different market.

The first form of Efficient Market Hypothesis is the weak form. It stipulates that the current stock price already reflects the information contained in the past history. It means that analyst can not out perform the market simply by exploring the past prices of the security. The name weak form because the security prices are most publicly and easily accessible piece of information. Hence everybody has got access to it; therefore there should be no special gain in using that kind of information

The second form is the semi-strong form. This class argues that the current price of any security already incorporate all publicly available information. In addition to past prices, it also includes information such as earnings and dividends announcement, data reported in the company's financial statement, merger plans of the company, company's competitor financial situation, and future macroeconomic factors. It further includes all every other information that can affect the market. The bottom line is that no one should be able to profit from using information that is considered to be publicly available to everyone. Condition surrounding gathering and processing publicly information is seen to be great that no one will want to go through it.

The strong form of Efficient Market Hypothesis is the third and the last category of the different forms of the Efficient Market Hypothesis. It states that the current price of security all ready reflects all available information like the other two forms above, it includes the information about past prices, publicly and private information. The stress in this form is that even the information that is not made public is already reflected in the stock prices. The strong form goes beyond the environment, but into the company's management and research teams. It means that even the people that make decisions about the company's future can not profit from the information they have not made public.

Another very important concept that allows a lot of debate in the financial market is the calendar anomalies. It is said to be the tendency of a financial asset returns to follow a systematic trend at certain times of day, week, month or year. Brooks (2004) .Some of these effects is January effect, Monday effect and so on. The fact is that some researchers have been able to make findings and come out with different observations in different markets of the world. The existence of predictable seasonal behaviour in financial markets can lead to people developing different technique to help harness these effects and make abnormal returns.

These were evidences from different research that for different markets the behaviour could be same or completely different .There were negative mean returns on Mondays in United State, Canada and United Kingdom stock markets and negative returns on Tuesdays in the Australian and Japanese stock markets. Jaffe and Westerfield (1989). According to Aggarwal and Rivoli (1989), it was also shown in their study using data from September 1976 to June 1988 that there lower mean return On Mondays and Tuesday's stock returns in the Hong Kong, Singapore, Malaysia and the Philippines stock markets.

The day of the week effect is simply put as a situation where a particular day of the week offers a higher return while others offers negative returns. Cross (1973) and French (1980), were the first to record that in the United States there is higher returns on Fridays and low on Mondays. The works of Gibbson and Hess (1981), Smirrlock and Starks (1983) also supported. However with other markets there are differences in the way the effect is felt. Some do have their effect on the other days of the week. The most important thing is that the effect is accepted after a proven track record of its returns either negative or positive over a significant period and the trend is tested with a huge amount of data so as to ascertain the effect.

In the Turkish stock market reports revealed that from the period of January 1988 to August 1994 there were various effects that show the day of the week effect. Fridays and Wednesdays showed highest returns and lowest standard deviations. While the lowest negative mean return appears to be on Tuesdays and the highest standard deviations on Mondays. Balaban (1995, 1996).He also observed that the effect changes from one particular day of the week to the other the years.

Aly, Mehdian and Mark (2004) investigated the Egyptian stock market index for week of the day effect. Data from the Egyptian stock market dated from April 26, 1998 to June 6, 2001.The Egyptian market traded between Mondays through to Thursday. Their research showed that Monday stock returns are significantly positive and are different from the returns from other week days. However the documented the Monday stocks are more volatile than others hence risky.

The work of Ash and Ozgur (2002) showed that after analysing 19 countries data they were able to observe that in the local currencies, eleven out of fourteen countries exhibited significantly positive mean returns on Tuesdays, excluding Netherlands, New Zealand and Sweden. Nine countries showed large and significantly positive on Wednesdays, excluding Italy, Canada, Spain, Sweden and USA. No negative returns were observed on Wednesdays. On Mondays eight countries showed significantly positive mean returns. Excluding, Finland, France, Italy, Spain and UK. Only New Zealand recorded a significantly negative mean return. Friday mean returns are lower or negative but of less significant to all countries except Spain and USA. Thursday is also less significant.

Weekend effect shows how some particular trend can be seen on the share prises based on the weekending. There are a number of papers that has demonstrated the weekend effects. French (1980), Keim and Stambaugh (1984) investigated using daily data and demonstrated the fall in the stock prices in the US stock market at the weekends. The effect is also found in other markets showing that investors react differently when the week drawing close to the end and their behaviour affects to prices of shares.

The Italian stock market also revealed some seasonal pattern in prises of stock. Baron (1989) sowed that the Italian stock market daily changes in stock prices in the January period accounted for an average of 0.33 percent at a confidence level of less than 0.001. Positive changes that are significantly different from zero at five percent confident level also found in February, May and August accounts.

Month of the year effect is another effect of calendar anomalies that has seen a great deal of investigation. The January effect was first put forward by Watchtel (1942), Rozeff and Kinney (1976), Studied the US market using the data from the NYSE index ranging from 1904 to 1974.They were able to observe that the average return in January was 3.48 percent while that of other months is 0.42 percent. After their findings they were able to document the January effect in the US stock market. This means there is a high return in January while December return is said to be negative.

Kato and shallheim (1985) investigated the Tokyo stock exchange, in their research having discovered that there is excess return in January; they try to investigate if there is a relationship between the excess return in January and the size of the firms. After concluding their work they find a strong relationship between the excess returns in January and size. The smallest firm shows return of eight percent while the biggest firm seven percent.

Mehidian and Perry (2002) also did a study on the US market and confirmed the January effect. Other studies also documented the January effects in the Asian market. Ho (1990).Apart from the January effect other monthly effect also have been documented by other papers, one of such is the intra month or Turn of the month effect. It denotes that averagely there is a positive return on the first half on the month, beginning from the last few days of the previous month. Elton-Gruber (1995) argues that average returns are higher in the first half of the month.

July effect rather than January effect was discovered in the Kuwait stock market. Al-Saad and Moosa (2005), research work using data from the Global Market Index of the Kuwait Stock Exchange dated from 1984 to 2000 found that over this period, the return was significantly higher in July compared to other month, which gave the July effect.

Also the April effect was discovered on the Indian Stock Exchange. With the use of data from the Bombay Stock Exchange and the National Stock Exchange between the periods of 1979 to 1998.They found that the return in April was significantly higher than the rest of the month. Kumari and Mahendra (2006).

The bond market according to some studies also exhibit some form of calendar anomalies depending on the market where the bonds are traded. Keim and Stambaugh (1984) did their study on the bond market and were able to demonstrate that between the periods of 1926 to 1978 low quality bonds yields relatively high return. Gibbson and Hess (1981), and Jordan and Jordan (1991) studies the US market in treasury market and corporate bonds respectively, while they both used different data, they both documented the same pattern. The returns on Wednesdays were higher than the return on other days of the week. The periods were between 1962 and 1968 for Hess and Gibbson, and 1963 to 1986 for Jordan.

Data from All share index from Nigeria, NSE 20 Index from Kenya, MASI index for Morocco, ZSE share index for Zimbabwe, FTSE/JSE all share index of South Africa, CASE 30 share index of Egypt, and Tunnindex from Tunisia, were collected by Paul (2008) He tested for calendar anomalies in all there markets. He put forward that monthly return on average for Zimbabwe is 0.082 and for Egypt it is 0.006 for the same period. It also shows that there is January seasonal effect in Nigeria, Egypt but there is both January and significant return in July for Zimbabwe with the January returns greater than the July returns.

Paul also found out that the month of February also indicated some form of significant return for Kenya, Nigeria, Morocco and South Africa. There is no equal return for all the months of the year for Zimbabwe, Nigeria, and Egypt while for countries like Kenya, Tunisia, South Africa and Morocco exhibited no January effect. He added the pre- holiday season effect is shown in the South African market. The returns of the days before holidays are significantly high

Paul helps to explain the possible cause of the presence of the anomalies in the African markets. He said that it is possible that it the" turn-of-tax-year effects found in many industrial economies do not extend to Africa market". He further explained that it could be as a result of the trading systems and the market structures found in these countries. "Tax codes in these economies do no give rise to selling of stock at the end of tax year to generate a loss for tax purpose".

For some countries where their economy somehow depends on the US economy, the difference in time zone does affect those Countries. This is the time zone theory explained by Condoyanii et l (1987).They argued that for those countries there is the probability of the Tuesday effect because when the US markets closes on Monday the information received could lead to the negative returns on Tuesday.

Rystron and Benson (1989) argue about investors' psychology. They explained that investors sometimes make decision under different physical and emotional conditions and when these decision are made they sometimes affects their financial judgement as a result the difference in the effect of the day of the week. As there are so many investors they all have their bad and good days which culminate to the impact on the stock prices, hence different result on the stock prices. They further argued that depending on how they feel and when they feel like selling or buying stocks. If they feel more pessimistic on Monday than other days of the week then they sell their stock and reduce the price. On the other hand if they feel optimistic on Friday they buy stock and create upward pressure in price.

Schallheim and Kato (1985) explain that the January effect on the Japanese stock exchange can be partly explained as caused by the period of bonus payment to employees. They explained that most Japanese companies do pay out large bonuses to employees during December period as results most of them come January still have a lot of money to invest. Hence the January effect. Ritter (1988) in a similar way also suggested that the effect can also be due to release of information. Year end financial report can cause a January effect. Whatever the news is either positive or negative it will definitely affect how investors react to the new month. Good news tends to create a positive January return effect.

Tong (2000) explained that the possible cause of the negative effect on Monday is due to individual response to negative news received on Friday prior to Monday .Having said that there are also the effects of transactional cost which can help to eliminate the possibility of taking advantage of the market for excess returns. This helps to reduce inefficiencies in the market.

Another possible cause could be as a result of companies trying to make sure that they sell all their bad stock which performed badly so as to avoid having to include them in their annual reports. This is popularly known as "window dressing". At the beginning of the year fund managers buy stocks that have performed extremely well so as to make their funds attractive to investors. This action is a possible cause of the January effect Sharp et al (1999).

The Italian market operates on the settlement day method. This is when payment and delivery are left until the settlement day usually fixed by the stock exchange calendar. This settlement day usually coincide with the last trading day of the calendar month. The pricing system is called forward pricing which stays the same within a monthly account and then rises at the start of next month Baron (1989).

Agrawal and Tandon (2004) investigated the settlement pattern in eighteen countries and were able to document their settlement days. They try to link the settlement days to the presence of anomalies in those eighteen different countries. Five-day, four-day, Three-day, Two-day and one-day settlement period investigated. They showed that only the US and Canada exhibited five- day settlement period. The cash payment occurs three days before the cash receipt they propose that there should be high return on Mondays to serve as a reward for the loss of the two days. However their study showed that the returns on Monday are negative and small in both countries showing that the settlement period has no effect on the economy.

The next was a four-day payment period and countries under the category were Japan, the Netherland, and Sweden. Like the US and Canada they also have three days before cash is received which indicate that they buy on Mondays and sell on Tuesdays. The expectation is that stocks will be high returns on Tuesday but the result also proved otherwise. The returns on Tuesday s were negative and small. It showed that again the settlement period has no effect on the stock market returns.

The result was different for countries like Denmark, Switzerland, and Italy with three-day payment period. The expectation is to have a high return on Wednesdays for these three countries. It revealed that the returns on Wednesdays in Italy were insignificant, high in Switzerland and Denmark. Here the conclusion is that settlement period do not explain the Italian returns, however in Switzerland and Denmark the settlement return has effect on the Wednesdays return.

Agrawal and Tendon went to investigate the two-day payment period in Brazil, Germany, Mexico, Belgium, and Singapore also expecting the return on Thursdays to be high. Their expectation was once again true for the rest except for Switzerland but could not find explanation for the low returns on Mondays and Tuesdays.

Finally in the one-day payment period in France and Hong Kong was investigated. They buy on Thursdays closed and then sale on Friday and close and cash payment on Friday and receipt on Monday. With this settlement period Friday returns is expected to be high. This was true for Hong Kong where the returns are high on Fridays but for France their highest return is recorded on Wednesday. The effect of Fridays return is explained by the settlement day period in Hong Kong but not in France. Negative returns on Tuesdays could not be explained by the settlement period.

Their research for UK, Australia, and New Zealand could not be tested for settlement day effect. This is because these countries do not have a specific settlement period pattern. Conclusively they explain that settlement periods can not be used to describe weekly seasonal effect in the countries of their study. However in some countries it can be used to explain the effect of some high returns discovered by their research.

CHAPTER 3

The Nigerian Economy and stock market

The Africa market for a long time has been at the very bottom of the financial matters, this is due to the fact that investors do not see the economy as promising for a long time they fear the risk is too high and are not sure of its rapid development. Africa is seen to under go so much instability in terms of the region experiencing civil wars and the leadership problem that is seen as a major inhibitor to economy growth. If the policy makers are not trusted then it is obvious that the laws that will govern the financial market will be of a questionable standard. Nigeria was for a long time moved from military take over to the other and each time there is a regime change the laws of the land are changed as well which shows lack of continuality in government which is a major blow to the country's development

Nigeria economy

The Nigeria economy is the type that has seen so many reforms over the years. It has gone through so many ups and downs. Nigeria is a country that forms a strong part of the total economy of the region to which it belongs. The economy of the region is greatly affected by the activity that goes on in the member countries that forms the market. The Africa economy is held by some big team players namely South Africa, Egypt, Kenya, Ghana, and Nigeria to mention a few. Now, more than before the region is catching the attention of foreign investors as so many potentials have been discovered in the continent.

According to the Country profile (2008). The country is located in West Africa on the Gulf of Guinea between Benin and Cameroon. It has an area of 923,768 square kilometres, including 13,000 square kilometres of water. It shares her border with Cameroon in the east. Chad in the northeast, Niger in the north and Benin in the west. Nigeria claims a territory sea of 12 nautical miles, an exclusive economical zone of 200 nautical miles and a continental shelf to a depth of 200 meters exploitation.

Nigeria is a country with one of the world highest urbanisation estimated 5.3 percent a year. It has a population of about 139 million in mid 2008 and the annual growth population rate was said to be at 2.38 percent .Abuja is the capital city since December 12; 1991.It was changed from Lagos since the independence in 1960.It is composed of 36 states. According the preliminary result of the 2006 census and other estimates, the most populous cities include Lagos (about 8million), Kano (3.8 million), Ibadan (2.6 million), Kaduna (1.7 million), Port Harcourt (1.3 million), and Benin ( 1.1 million).

The country has more than 250 ethnic groups; they are distributed across the whole geographical region. We have the Hausa and Fulani making up 29 percent, Yoruba 21 percent, Igbo 18 percent and Ijaw 10 percent. The Hausa and Fulani are the dominant people in the north, Yoruba in the southwest, Igbo in the east and the Ijaw in the Niger Delta. The whole population is split between Islam making up 50 percent and Christians 40 percent. The Muslims constitutes the majority of the north while in the south we have the Christians as majority while the rest 10 percent do practise other traditional beliefs.

Nigeria as a nation came under military rule after the war; Yakubu Gowon became the president in 1966 coup. The regime ruled by a decree. In 1970 Gowon announced to the public that he will be staying in power until 1976.His administration came under criticism because of wide spread of corruption and injustice in the system. Crime rose so high to the extent that it affected national securities in the country there by inhibiting economic growth. Not long another coup was staged and another military ruler came into power in 1975.After the era came the era of a civilian rule which was headed by Alhaji Shehu Shagari. The economy started to see a boost, oil prices jumped up and revenue increased. But this era did not last long before it collapsed. Since then there has been power changes from one party to another.

The economy of Nigeria is described by economist as the coexistence of as vast natural resources of wealth and extreme personal poverty as a "paradox of plenty" or "curse of oil". With a country with that much fossil fuels and yet about 57 percent of the population are still suffering calls for concern. The movement of oil prices in the international market especially when prices are high has enabled Nigeria to export oil and gas to make profit in surplus. The distribution is such that 80 percent of the revenue generated flows to the government, 16 percent covers operational cost, and only 4 percent goes to investors.

From the World Bank evaluation, due to corruption taking its toll on the economy, 80 percent of the revenue only benefit one percent of the economy. Most of the revenue is said to be used in settling the debt own by the country to clubs like Paris club of lending nations and London club of lending nations in 2005 and 2006 respectively. The Nigeria's economy is said to be highly inefficient, human capital is underdeveloped. In the United Nations development index conducted in 2005, Nigeria is ranked 158 out of 177 countries.

Economy reforms

In the quest to solve some of the countries domestic problem such as lack of inconsistent power supply, access to affordable clean water, irrigation for farmers in areas needed, poor state of public infrastructures, corruption, and also to help private entrepreneur the government introduced a reform programme called National Economic Empowerment Development Strategy (NEEDS). The reform is to raise the standard of the economy through the use of some economic tools such as deregulation, microeconomic stability, liberalisation, privatization, transparency and accountability. With the introduction of NEEDS the government hope all its goals are achievable.

Another programme by the United Nations called National Millennium Goals for Nigeria. It covers a period of 2000 to 2015 under the programme; The United Nation categorised Nigeria as a nation with the potential of can be worked with for the purpose of the program to come through committed to in solving the numerous problems facing the country such as poverty reduction, education, health, the environment, international development corporations. In a progress report in 2004 they discovered that Nigeria was able to progress in some areas but however they were also failing in other areas. Nigeria made progress in areas such as universal primary education, protect the environment but failed in eliminating poverty and extreme hunger, reduction in child and maternal mortality.

After taking office in May 2007, President Umaru Musa Yar'adua embraced a policy known as Vision 2020 to transform Nigeria into one of the world's top 20 economies by 2020. Vision 2020 envisaged the enactment of a "Seven Point Agenda," consisting of the following points: power and energy infrastructure; food security and agriculture; wealth creation and employment; mass transportation; land reform; security (including bringing stability to the Niger Delta); and education.

A criterion needed for the success of the goal of eradicating the inhibitors of progress, affecting growth and expansion thereby making doing business in the country of a high risk. Olusegun Obansanjo ex president of the country mobilised his cabinet and the people of the country to fight against unfairness, he brought justice even against some of the leaders that are found to participate in an anlawful and act of embezzlement in the country. The international community were happy with him and as a result gave him support by bringing back some of the money kept by this people in foreign banks abroad. The cleaning of the country is indeed a very big task as the country for many years has been head deep in the act of corruption. In the ruling of the nation the problem also include lack of consistency between the presidents that comes and go. Every new president that comes into power is seen to always change the frame of the government running from what the former did. Most of the contract will be rewarded thereby causing delays and making most contracts go without exhibition.

Sectors of the economy

The library of congress (2008), explained the sectors that are in the Nigeria economy and how they have managed to survive over the years. The sector is classified into Agriculture, Mining and Mineral, Industry and Manufacturing, Energy, Banking and Finance, Tourism, and Foreign Economic Relation their quotas in the economy, their down fall and how they have helped improve the Nigerian economy.

Agricultural: "This is the sector that helps to provide most of the farm produce that the economy consumes they include most of the plantings in the form of maize, plantain, cassava to mention a few, it also include the fishing which is the major occupation of the people in the coastal areas of the country. The rearing of animals also constitutes the agricultural share of the country economy. Agriculture used to be the major generator of the country's revenue before the oil boom era. The country does exports food to nations around the world accounting for a huge percentage of the country's gross domestic product. The sector employs more than 60% of the working class of the country. As the years rolled on the sector suffers a major set back, the sector went backwards because the problem facing it were neglected by the government since other natural resources were focused on. Its funding was cut short it began to suffer from infrastructural break down. The increase in population also added another blow to the sector. It could not cater for the growing population anymore. Production of food and raw materials for the economy became a problem. Instead of production it now resolves to importation.

Mining and Minerals: "Nigeria is a country with abundant deposits of solid minerals, including barites, coal, columbite, gemstones, gold, graphite, gypsum, kaolin, marble, iron ore, salt, soda, sulphur, tantalite, tin, and uranium. However the irony is that the sector went into the shadows when the petroleum business started booming, the mining industry, which exported significant amounts of coal and tin until the 1960s, saw a major neglect all of its infrastructure were left unmaintained. The mining business now only occupies for one percent of gross domestic product . Mining suffers from extremely low productivity and high production costs. Nigeria is seeking to reinvigorate its mining industry through privatization and deregulation.

Industry and Manufacturing: Industry accounts for 53.1 percent of Nigeria's gross domestic product (GDP), much of which is attributable to the lucrative energy sector, and it employs about 10 percent of the labour force. The oil and gas sector accounts for 95 to 99 percent of Nigeria's export revenues. Manufacturing's share of export revenues is estimated at 1 percent. By contrast, in 2005 manufactured goods constituted the largest category of imports. In 2006 the capacity utilization rate of industry stood at 53.3 percent, a relatively low rate that policy makers hoped to increase by reversing capital flight and removing impediments to private-sector activity".

Energy: "A member of the Organization of the Petroleum Exporting Countries (OPEC), Nigeria has proven oil reserves of 36.2 billion barrels, the tenth largest reserves in the world. Most of the reserves are located in the Niger River Delta. In 2006 Nigeria produced 2.4 million barrels per day (bpd) of oil, approximately 2.1 million bpd of which were exported. Nigeria ranks as the world's eighth largest exporter of oil and the United States' fifth largest source of imported oil. Nigeria hopes to increase production over the next five years but faces pressure from OPEC not to exceed its quota, which is set at 2.3 million bpd.

In February 2006, the steady flow of Nigerian oil exports was hampered by attacks against oil facilities and kidnappings of oil workers staged by militants upset with the distribution of oil profits within Nigerian society. In fact, damage to one of Royal Dutch Shell's export terminals led to a 25 percent reduction in Nigeria's oil exports. This reduction has continued into 2008, as violence has worsened and many foreign oil workers have left the country. In January 2008, the Ijaw Youth Council, a group representing the Ijaw ethnic group, announced that it was supporting the militants. Such continued violence could pose another impediment in addition to OPEC's concerns to Nigeria's plans to boost production.

Proven natural gas reserves are estimated at 182 trillion cubic feet, the seventh largest reserves in the world and the largest in Africa. In 2005 Nigeria produced 791 billion cubic feet (bcf) of natural gas, 425 bcf of which were exported.

Recoverable coal reserves amount to 209 million short tons (mmst). In 2004 Nigeria produced only 0.02 mmst, all of which was consumed domestically. Nigeria's coal industry suffers from extremely low productivity and high transportation costs.

Only 40 percent of Nigeria's population has access to electricity, although the government plans to expand access to 85 percent of the population by 2010 through a rural electrification program. In 2005 Nigeria produced 23 billion kilowatt-hours of electricity, exceeding domestic consumption of 17 billion kilowatt-hours. Nigeria's electric network operates well below its capacity of 5,900 megawatts, and power outages are commonplace. Foreign electric power companies have been encouraged to build independent power plants to help meet the demand for electricity.

Services: "Services accounted for an estimated 29.3 percent of gross domestic product and employed roughly one in five workers in 2006. The most important branch of the services sector is banking and finance".

Banking and Finance: "In 2006 Nigeria's banking sector successfully completed a consolidation program under the supervision of the Central Bank of Nigeria, which has regulatory authority over the entire financial sector. From a total of 89 banks, many of them marginal, 25 relatively well capitalized deposit banks have emerged. Even before the consolidation, loan assets and deposit liabilities were highly concentrated. In addition to deposit banks, Nigeria has hundreds of community banks and a small number of specialized development and mortgage banks. A similar consolidation is planned for the insurance sector. In 2007 Nigerian banks such as Intercontinental Bank and Guaranty Trust were the beneficiaries of significant foreign investment. Contrary to modern practice, many financial transactions in Nigeria are conducted in cash rather than with bank letters of credit."

Tourism: "In 2005 Nigeria received more than 2.7 million tourists. The largest contingents came from Niger (620,658), Benin (393,215), Liberia (107,401), and Cameroon (107,108). In 2004 tourism receipts totalled US$49 million. The Nigerian government encourages its citizens to visit tourism destinations within the country through various financial incentives. Concerns exist regarding the quality of amenities and personal safety."

Foreign Economic Relations: "Nigeria's foreign economic relations revolve around its role in supplying the world economy with oil and natural gas, even as the country seeks to diversify its exports, harmonize tariffs in line with a potential customs union sought by the Economic Community of West African States (ECOWAS), and encourage inflows of foreign portfolio and direct investment. In October 2005, Nigeria implemented the ECOWAS Common External Tariff, which reduced the number of tariff bands. Prior to this revision, tariffs constituted Nigeria's second largest source of revenue after oil exports. In 2005 Nigeria achieved a major breakthrough when it reached an agreement with the Paris Club to eliminate its bilateral debt through a combination of write downs and buybacks. In 2006 Nigeria reached a similar agreement with the London Club of lending nations. Nigeria joined the Organization of the Petroleum Exporting Countries in July 1971 and the World Trade Organization in January 1995".

The stock Exchange

The Nigeria stock exchange for so long was not a major force in the international market until recent times when it started playing a role in representing the Africa alongside countries like Egypt and South Africa. For over a century ago when it started if has gone through various reforms to get to where it is today. Now it puts Africa on the map on the global market allowing Africa to play a part of the financial wave that is going on in the world today. The present state of the world economy shift focus to the emerging market which is recording a great deal of growth having survived the economy crash. The world is now turning to emerging markets for great profitability and answers to the present economy bubbles.

The Nigeria stock Exchange (2006).This is a book that has most of the important information about the exchange. The exchange started in 1960 as Lagos stock Exchange. The Exchange started with 19 securities listed and in June 5th 1961 the exchange started trading. In November 1975 the then federal government appointed Industrial Enterprises panel which helped among other things introduced and implement the idea of indigenisation. They help to bring in programmes to help the local indigenes great involvement in the exchange. Financial system review committee was created on the 5th April, 1975. The name of the exchange was changed from Lagos Stock Exchange to Nigeria Stock Exchange in December 1977.

The Exchanged organised by the Central bank of Nigeria was operated by the Nigeria Industrial Development Bank (NIDB). Then the Exchange only got their revenue from membership dues, agent fees, and quotation fees from the companies that are listed on the exchange and grant from the Nigeria Development Bank and also from the Central Bank. The quotation fees were charged based on the capital of the listed companies with a cap on both the maximum and the minimum fees.

The Kaduna branch was opened in June 1, 1978, and in April 30 1979 the Port Harcourt branch was also opened .The new branches that were opened were also used as trading floors to enhance the trading in all those states .The exchange started expanding with activities in all the branches thereby helping the Nigeria economy to grow as well. The All-Share index came to existence in January 3rd 1984 and the second Tier Security Market (SSM) was launched.

Due to the expansion of the exchange in the region there became a need to start incorporating some systems that will help the exchange to open up and expand to the international arena and in preparation for that the exchange introduced Reuters Electronic Contributor in June 2nd 1987. After the introduction of the Electronic contributor, the Kano and Onitsha were established in May 22, 1989 and February 2, 1990 respectively. The Onitsha branch operated on a "call-over", this is because it was not automated and as a result traders cannot trade directly on the floor. The system of call-over starts with a call-over clerk call up the security. Traders then begin to price the security with a low price for buying and a high price for selling. The final price that is pasted on the board will be the price of the last trader.

There were a lot of changes that took place in the exchange in 1995. In January 15, 1995 the federal government changed the Exchanged control act of 1962 and the Nigeria Enterprises Promotion Decree 1989.The changes that were made gave the exchange a firm footing in the international environment. In that same year new laws were introduced to enable the exchange to attract investors from the international market. The rules include The Nigeria Investment Promotion Commission Decree No 16 and the Foreign Exchange which were introduced in July 21, 1995 and the issuance of administrative foreign guide lines.

As the Exchange continue to grow, more and more changes were made to make the exchange suitable for challenges that it faces. In May 2, 1996 the percentage pricing system was introduced with the daily fluctuation set at 5 percent. In that same year it introduced the weekly settlement and delivery period instead of the old system of settlement and delivery period. On October 30, 1996 the Nigeria Stock Exchange reached a milestone by electing the President of Africa Stock Exchange Association (ASEA) in Cairo.

Most recently the first Nigeria real time online trading is the Onitsha Stock Exchange. Now on the Nigeria Stock Exchange it has 266 securities including government stocks, industrial loan debenture stock and 194 companies. There are different regulatory bodies controlling the Exchange. The most powerful of all the bodies controlling the exchange is the Security and Exchange Commission. It regulates the overall transactions of the Nigeria Capital Market making sure that the rules guiding the market are adhered to. It conducts a proper check on who is allowed to operate in the capital market and license is issued to those found to worthy.

The commission also scrutinises the securities that are issue to the public for investment, making sure that there is absolute transparency. They also do the licensing for transaction floors and exchanges, matters associated with mergers and acquisitions, and takeovers. They see to it that there is fair practice that will help the market to grow and attract more investors. It ensures good corporate governance for the quoted companies which are responsible for delivering timely and reports that are reliable for the use of the investors.

CHAPTER 4

Methodology

Types of Research

Basically in the field of research there are two types of research namely Qualitative and Quantitative .However there are other forms of classification where researchers try to tailor their research work to suit a particular purpose. This helps to understand that research can come in some other forms designed to meet some well defined purpose. Having said that majority of these other forms if critically evaluated can still be classified as to either belong to the qualitative or quantitative type of research. Whatever forms the researcher tends to go on doing a research there will be a decision to either use the qualitative or quantitative approach. However some works will sometimes require the use of both qualitative and quantitative approach.

Qualitative method can be said to be a type of research where the data involved is not in the form of numeric or statistical form but rather deals with human reaction to different situations at a particular time. It involves behavioural analysis, interpreting the interaction between groups of people who are connected by a common aim. The groups involved are not randomly selected and in some cases are small groups. The data collected are in form of interviews, questionnaire, observation from people who have experienced the situation under study, and participants of a programme to mention a few. What ever the type of data is, it is usually collected in words, images, or objects forms which enable analysis such as identifying patterns, characteristics. Johnson (2008), Lichtman (2006).

The result obtained from using qualitative method alone as a research method are sometimes particular to that study or specialised which can not be said to the accepted by everybody else. This is because in most cases the objective could be to conduct a thorough finding on a particular subject matter, put forward a statement as to why a situation appears to be what it is or to explore a particular area of interest but it tries to do a very in-depth analysis of what the process. The report obtained after a research conducted using qualitative style is usually narrative, descriptive and in some cases direct quotation from members who were directly involved in form of a member of a seminar or survey. Johnson (2008), Lichtman (2006).

Quantitative method of research as compared to qualitative is a type, where hypothesis is tested, a particular cause of an event is investigated, and effect of actions, recommendation and prediction are made. Under quantitative, the data collected are numbers and statistics with particular studies to be carried out on the data available. The study group is differ from qualitative in that it is larger and it is selected from varying source so as to make it dispersed in order to enhance the study. To ensure that the research is of good standard, data collection tools are used to collect the data. It helps to give the data precision and also good standard.

The analysis performed on the data is mostly statistical so as to establish a link between the data and the objectives of the research work. The quality of the work is of a very great importance as the result can be used somewhere else as an authority to evaluate similar cases. The major work is to test the hypothesis and other research work already conducted with data that is available. Correlation, regression, means, and standard deviations are some the test carried out. The result of which is used to explain a particular phenomena, and to make predictions for the future.

Research Problem

Looking at the economy of the nation there are so many aspect of it that is worth exploring. This is due to the fact that the economy among many others in the region is very promising but because a lot is yet to be done to really expose the potential of the economy so many investors are sceptical about investing in it. Like every other economy in the world there are the ups and the downs that is associated with it but due to rigorous analysis by financial analyst the problems of such economies are reduced significantly. The research problem is the efficiency of the Nigerian stock market and do calendar anomalies exist. This problem is going to be investigated using data from the Nigerian All-share index. The result of the investigation will show if the market is efficient and also if calendar anomalies is found in the market.

Research Style chosen

In this research work, the style to be adopted will be the quantitative method. This is because the work is based on the most important characteristics of the quantitative style which to test a hypothesis, look for possible cause of a trend and its effects and in the end establish a fact that can be used in a generalised form and possibly make recommendation for further work. This style will enable proper analysis to be carried out on the data that will be used; it will also help to make the right criticism as the best method for such research work is used. The analysis carried out here will be purely statistical and the style best suited for such numerically based work is the quantitative style.

Hypothesis

Emerging markets are usually tested for weak form efficiency. Nigeria market is a young market having been in operation since 1961 the market is about 49 years old having gone through so many uncertainties in the region, which has affected the development of the market. Therefore it is appropriate to test weak form efficiency. Accordingly the hypothesis of this research is: Nigeria stock market is not weak form efficient.

Research question

The question that this research work is out to address using all the tools at its disposal is:

Is the Nigeria stock market weak form efficient; do calendar anomalies exist?

The question is relevant not only for the Nigerian investors but also for foreign investors who are willing to come into the market to trade. Without which the market can not grow as a result it is imperative to give adequate and a quality report to show the state of the market and how it performing. When foreign investors are attracted into the market, it will open up market for more critical analysis and many more improvement will occur, as more researchers will tend to study the market. The more the exposure of the market to more critical analysis the better it becomes. In this thesis the data available will be critically evaluated to check for the validity of the hypothesis and to check for the possibility of the presence of calendar anomalies in the stock market.

Methods of Analysis

The analysis that will be done on the data provided is so enormous as a result a systematic and a very well step by step approach is employed to make sure that the aim and the purpose of the research is not lost. This research among many others will tend to build a base and some findings about the Nigeria stock exchange. It will be clearly done so as to give room for other researchers to build on it or to criticize it in the near future. The financial market of any nation is a window into how the economy of that country is performing and how reliable it is to invest in such economy. Having stated that the style of the research will follow the quantitative approach, it indicates that a lot of data will be tested statistically.

The first method of analysis will be in the form of critically appraising the literature of efficient market. The efficient market literature is one of ground literatures in the financial world today, many research have been made by great and experts in finance. It is a subject that has raised so many questions in the heart of financial analyst. Some argue in favour and some against. The overall some do not even believe in it. They believe that everything happens due to human interactions. With subject like this it is pertinent to look at what is documented as regard in the past about the subject and how relevant it is to the study in present times.

Hodrick (1987), Frankel and Froot (1987) were some of the many researchers who did not support the theory of efficient market in the foreign exchange market. Ergul et al (1997) studied the UK and emerging market to demonstrate the validity of the efficiency of these markets. Hollistein, Isakov (1998) demonstrated the possible elimination of outsmarting the market using technical trading rules but the work of Szakmary, Davidson and Schwarz (1999) also showed their that their findings were able to but support some theory and did not support others which showed two side to the trading rules of the technical analysis based on the data they worked with.

The second method of analysis in other to achieve the set goal of this research work is to conduct a test show predictability of returns. The test here is to investigate other theories that argue about the being able to predict future returns on stocks. This theory among others has also received a wide spread of support and critics. Some research work proved the theory to be true for some market while others proved otherwise. Lo and Mackinky (1998, 1999) supported the theory of returns. It all depends on how information is managed in the market where the studies are carried out. Time of the research also goes a long way, in that different macro and micro economy condition affects market all over the world. In Nigeria which is the focus on this study, the economy is seen to be in the developing stage which means that it is classified under emerging markets. Most of the processes and how the economy behaves are still not as strong as compared to western markets which are said to be developed. More of low standard activities are still carried out in the system.

The third and the last method of analysis are to test for calendar anomalies. The world is now become a global market where every country now trades with their neighbours. Far from what it is used to be in the past there is no one country that can be said to be absolutely independent in terms of financial matters, in the global market all countries tries to study each other to enable them invest. The investment made by foreign investors sometimes takes a very strong hold in the economy of the recipient. Multinational companies now open branches in different countries all over the world in other to enjoy the benefit that the county has over the original country of the business.

Countries tend to operate differently when it comes to how the economy is run. Some economies have a strong religious attachment in their economy for an example the trading days of the week and holiday periods. Countries like some in the Middle East do take Sunday as part of the trading days while in the countries situated in the western world, Sunday is seen as a week end, they also have special holidays when they celebrate festive periods according to their religion. They also have some days in every year where other Islamic worshipers all over the world join them to celebrate their religion. In the UK there are special days for holidays usually called Bank holidays where there is no trading. In situations like this there will definitely be difference on how the economy behaves compared to the ones in the Middle East.

A religious belief also helps to shape some of the trading rules in countries where religious is seen as a strong force. This is seen in countries like India, China to mention a few. These countries have different rules even on how the country is run which is in turns affects the financial sector of the country. For an example the way Islamic banks and Islamic bonds operate is quite different from the conventional ways in the western economy. The New Year day in China is celebrated on a different day from the rest of the world to show what they believe in according to their way of life. Another strong force that impact the global market in the time zone difference between countries. While some part of the world is sleeping, trading is going on somewhere else in the world. How holidays are arranged also differs from country to country. With all these differences it is quite clear that the difference will impact the economy.

Calendar anomalies if it exists in any economy shows a particular pattern in the movement of share prises or the entire economy as a whole. Nigeria is a country in Africa where there is a mixture of different cultures and also some adoption of the western style. This pattern if discovered can make financial expert take advantage of the market to make excess return. This anomaly is also studied in the Nigeria economy to find out if it exits which is one part this report is set to investigate. In an emerging market like Nigeria, it is possible for some few financial experts to take the advantage of it weakness to outsmart the market. With a report like this it is set to expose this weakness if it exists so as to help inform the general public of what is going on in the economy and to make the information common so as to stop the few from benefitting from it.

Data source

The data for this thesis came from the Nigeria stock exchange; there are other organisations that also do have a large data base for storing data as each of the trading passes. In the time past there have been so many discrepancies in those data which raises a lot of question. The quality of any research depends largely on the source of the data. The analysis could be world class but if the data used is not from a trusted source the report as a whole will not be credible enough to be accepted for the purpose of which it is intended to satisfy. The data collected spans a period of Ten years from 2000 to 2010. The data comprises of the all share index of the Nigeria stock exchange with their dates. This data will be used to evaluate the return on the entire share index to show for efficiencies, it will also be tested for evaluation of calendar anomalies.

CHAPTER 5

Analysis and Findings

Bearing in mind that some analyses have been conducted by some research papers. However research result can sometimes follow the same pattern thereby having the same line of inferences. But in other cases there could be a very different result obtained. The reason could be as a result of so many conditions. The economy of any nation varies with time, the prediction today might not work tomorrow and the information that investors trade with changes swiftly. Whatever the reason may be as more work is carried out in an economy the more the findings and criticism. The analysis in thesis is carefully carried out so as to compare its result with other documented works.

Analysis of Data

For the analysis on efficient market hypothesis so many financial tools can be employed in other to come to a reasonable inference. Most work on the test for efficiency in the emerging markets are done either by using tools such as unit root test or the runs test. Some researcher prefers to use the two methods side by side to critically compare the result obtained. These two test tools help to reveal the random walk in the movement of share prices. The level of acceptability in using either of the tools depends on the researcher. Correlation analysis can also be used to test the data for relationships. In this report the regression analysis tools is employed for showing the relationships that exist in the data obtained.

Regression Analysis

Regression analysis is a statistical tool for evaluating how data are related. In so many cases of research work there are usually moments where the relationships between variables needs to be established for interpretation and inferences drawing to explain a trend or to explain a phenomena. The analysis can be done using one dependent variable and an independent variable; in this case a linear relationship is established between the two variables. If the variables are just two a linear relationship can be established between the dependent variable and the independent variable. This is known as a simple linear regression.

Multiple regressions come into play when there are more dependent variables and one independent variable in the case of this research work. In this case the effect of the dependent variable is examined on the independent variable. In this dissertation the multiple regression analysis is used. The independent variable is the return on the Nigerian stock exchange and the dependent variables are the previous return of past days up to five previous days. The analysis of the effect of those five previous days on the return was now investigated.

The interpretation of the analysis is carried out by the result of the outcome on the regression table. Every individual parameter on the regression table gives a piece of information about the relationship between the dependent and the independent variable. According to Vinsness (2001) he explained some of the parameters in the regression analysis table. Coefficient of determination usually known as the R2 Adjusted. This is the parameter that explains the amount of variation in the dependent variable that the independent variable accounts for. He further explained that the closer it is to one the more acceptable it becomes, even better if it one as it will show that all the variation in the dependent variable is accounted for by the independent variable. In the other part of the table, the ANOVA table the interpret f-value and the null-hypothesis, the p-value if less than five percent it is accepted but if more than five percent it is rejected.

Data description

In testing for seasonal pattern, the data used is from NSE stock indices of the Nigeria stock Exchange. The Nigeria stock Exchange index has been in compilation since the 1960 when the Exchange first started and it clearly shows the true state of the market. It has in it 266 securities that is traded on the stock market. The data in this thesis is collected from the Nigeria Stock Exchange. It covers the main stock market indices in Nigeria. The data covers a period of 03/01/2000 to 01/02/2010.The market capitalisation is also included. It is very important to point out here that there was a major problem trying to get the data from the Nigeria stock exchange. Due to inadequate information technology system for collection and storing data, the data is scattered in different location which now had to be collated and brought together for use in.

To test for market efficiency the daily return is used. Based on the data the provided the return on each index is calculated, subsequently the previous day return is also calculated up to five previous days. The regression of the whole data is calculated, plotting the return of the indices against the five previous days. Vaihekoeki (2004) argued that continuous compound return follows the normal distribution in a more coherent way. The daily return is calculated using the formula below:

RIt = ln[vt ? vt-1] (1)

Where Rt is the return of stock index i at time t and vt and vt-1 are the resulting values at time t and t-1 for the same index.

The first data analysis describes daily data covering years from 2000 to 2010.The daily return is tested against the five previous days. The regression analysis of the whole data is then evaluated. The table shows the effect of previous day prices up to five days and showed how the previous days prices is incorporated into today's price.

The presence of 30 Percent of R2 indicates that 30 percent of the data is explained by the model; it tells that 30 percent variation in the NSE return is accounted for by the dependent variables of the NSE previous returns.

The NSE previous return in the equation above is the addition of the coefficient of NSE previous returns where their P-value is less than 0.05 that is less than 5 percent. The rule is that the coefficient with p-value less than 5 percent is accepted otherwise it is rejected. The NSE for the fourth and fifth previous day's return was rejected based on the rule. The intercept is rejected also since it is more than 5 percent.

The regression analysis showed that the Nigeria stock market has some dependency on historical prices. From the table it shows that 52 percent of yesterday returns is incorporated into today's return, which means that for the first day it reflected 52 percent of yesterday effect.8 percent of second day previous return is reflected , negative 11 percent of the third previous day is also reflected . Finally from the analysis there is no fifth previous day return effect.

The overall effect shows that in the five previous day analysis, an average of 45 percent of last four days return comes into today's return. This help to show that the Nigeria Stock Market is very inefficient. The inefficiency of the market proves that in the Nigeria Stock Market the Efficient Market Hypothesis does not apply, which indicate that the market pattern can be predicted for excess gains. It also shows that financial analyst can predict the future price of stock based on yesterday price

Weekday effect

The tested conducted to find out on which day of the week the return is significantly different from zero

Table 2

Table 2 contains the result of the test carried out on the data from the Nigeria Stock Exchange showing the day of the week effect. The mean, standard deviation, and t-statistics were also calculated to adequately evaluate the day of the week effect. The mean row of the analysis shows all negative. The standard deviation falls around 0.1 percent. In the t-statistics row, if t is greater than 1.65 (t*gt;1.65) with more than 30 observation then there is a significant effect and if t-statistics on the other hand is more than 1.65 (t*lt;1.65) there is no significant effect.

The result revealed that for Monday, Tuesday, Wednesday, and Friday there is no significant effect on the returns. However on Thursday the return showed that the market is significantly depressed. This depression can be caused as a result of some activities in the economy that is impacting the market. This trend can be used by financial analyst to avoid selling on Thursdays but rather buy since it is depressed the buying option will lead to a high sale latter when the market comes back to normal.

Month of the year effect

CHAPTER SIX

Discussions

Implications of the findings for the research question

The analysis carried out on the all share index of the Nigeria stock exchange showed that the market is not efficient. The test carried out was to show if the Nigeria stock market is a weak form efficient and also to investigate if there is any calendar anomalies in the stock market. This is basically the research question and in which the test carried out on the data adequately answered. Regression analysis is the financial tool that was used to evaluate the data and show if the market was efficient or not. The regression model was employed when the return on each day was calculated using the logarithmic formula.

The efficiency of the Nigeria capital market is very much on the inefficient side. The capital market does not adequately reflect all the information that is available in the price of the stocks. For the market to be efficient the price of stock should reflect all the information that flows in the economy of the market. The economy can either be weak-form efficient, semi strong form efficient or strong form efficient. The weak form efficient is when the historical price can not be used to predict future price. Most of the emerging markets in which Nigeria is one are usually tested for weak form efficient. The reason behind the test for weak form is to show how the emerging markets are doing as compared to the developed markets and to attract investors into their market.

The data that was tested from the Nigeria Capital Market is a Ten years data, dated from 03/01/2000 to 01/02/2010 a total of 2493. The data covers a long period of trading so as to show more accuracy and to demonstrate how the market is been behaving over a long period of time. It helps to show confidence in the analysis and also to prove an accurate result. This is important as the economy is still growing as a result analysis of such can help boost confidence in the market thereby attracting investors to help grow the market.

Having seen the recent melt down in the financial world ,the countries that were able to withstand the credit crunch by bouncing back recording great amount of growth were the emerging markets like China ,India to mention a few. Africa is one of the market that makes up the emerging market as a result every research work on these markets is seen as crucial to help investors in developed countries and even investors in those countries to get a good grasp of what is happening to the financial markets.

ZThe result obtained from analysing the daily indices on the Nigeria Stock Exchange showed that the Nigeria capital market is not weak form efficient. The return of five previous days prices were investigated and it revealed that out of the five days previous returns there are four days previous prices incorporated into today's price. It demonstrated the not weak form efficient. The result also helps to understand that the information that flows is not reflected in the price of stocks. This shows that in a market like this there is the possibility of outsmarting the market. Financial analyst or professional investors can take advantage of the inefficiency to make excess gains .They can predict the future price of some stocks and take the advantage of deciding when to buy or sell.

The analysis revealed three positive returns which were on the first, second, and fifth day previous return and two negative returns on the third and forth day. It helps to further revealed that there are activities which are taking place in the economy for such trend to be noticed. This could be due to how holidays and festive periods are observed in the country, it could also be related to how the flow of money in the economy is treated in terms of when workers are paid, how settlement are made or the general feel of the public as whole.

Portfolio managers are always looking for how to either make more money for their customers and to show that they are better fund managers than others in the market, as a result if there is any weakness in the market they quickly move in fast to take advantage of making themselves and their client rich. They use the opportunity to advise their investors on what portfolio to invest in. This will make the market uneven as some individual will profit above the normal market price. This is what some research work has said to be impossible, but with economy like the Nigeria economy it is possible as there is no efficiency in the market. The market in not weak form efficient. Arbitrage is another financial operation that will take place in a market like the Nigerian market. It is a process that happens when an under valued security is spotted; it is bought and then sold in another market where the price is considerably higher.

Markets are in most of the time a place where there are buyers and sellers; there are also some markets that are closely related in terms of trading. Some investors or portfolio managers go as far as invest in more than one market. Trading in multiple markets gives the opportunity to weigh how stocks are performing in the individual market. Whenever they spot an asset that is mispriced in a market they can buy them and then sell them in another market where it is priced at the market price to make excess profit for nothing. This is done after several monitoring is made on the market to spot such mispriced asset. Making profit in such ways helps them to believe that not all market can be efficient at the same period. Even though in most cases the market quickly move in to eliminate the under valued assets but before them the harm has already been done.

The second part of the research question is answered by the analysis done on the same set of data from the Nigeria stock exchange. From the result shown from the test ,it revealed that the Nigeria stock market indeed showed the presence of calendar anomalies. Usually the idea behind the presence of a specific pattern in the movement and trading of securities in the market helps to understand that there are activities that are peculiar to the market. Peculiarity in the Nigeria economy is not the first as other nations also exhibit their own characteristics. There are activities that could be traced either due to it divers culture or it belief system which is dictating the direction of the financial market and somehow impacting the stock market.

The calendar anomalies in the Nigeria stock exchange are phenomena that have shown that there is a pattern in the market. The test on the data from the Nigeria stock exchange showed that there is a negative mean on all the days of the week .With 484 observations, the test showed that there is no significant effect on Monday, Tuesday, Wednesday, and Friday this is because the t-statistics value is less than 1.65 (t<1.65).However the return of the market is significantly depressed on Thursday. This gives the economy a Thursday effect. The value of the t-statistics is greater than 1.65.

Comparison of findings with existing theory and previous empirical research

There is not a lot of report documented on the efficiency of the Nigeria stock market as a result the outcome of this work will be compared to the very few that is available and in a more larger context compared to other markets in the region and also similar market in the world such as countries in the emerging market.

Nigeria been a part of the emerging markets it is pertinent to also compare the behaviour in the market with other emerging markets for more clarity and analysis. Urrutia (1995) conducted a study and showed that in the emerging markets of Latin America, their stock market is not weak- form efficient. In the Middle East according to a test conducted by El-Erian and Kumar (1995) it also revealed that the Middle East stock market also follows the path of not weak-form efficient.

Other studies that were done in Africa include the work of Dickinson and Muragu (1994), they did their study on the Nairobi stock exchange and their findings did not revealed a very good evidence to show the state of the market as a result they suggested that more critical analysis must be done using other methods other than the runs test and the Q-test statistics method that they used to evaluate the Nairobi stock market, Kofi (1998) conducted his own test on the Ghana stock market. His result showed that there is a consistent move in the share prices in a particular direction. This means that if a high return is recorded for a season it can repeat itself for another season and if on the other hand a low return is recorded for the season it is seen to happen again, it shows that the market does not follow a random walk theory of the efficient market hypothesis.

Kofi gave so many reasons why the economy is not weak form efficient. He said among other things that there is the possibility to have very few financial experts, who can process financial information in order to make informed decisions for the investors in the country, or there is also the possibility that there too much "window dressing" in the information that the companied releases to the public. There could be so much inside trading going on since the economy is not very strong enough for proper monitoring activities to be put in place.

Addo (2001) she tested the efficiency of the Ghana stock market to see if there is a relationship between the Ex- dividend day days and the share price, she used the model proposed by Elton and Gruber, knowing that there is a Ten percent tax on dividend income and zero percent tax on capital gains . After her findings she was able to prove that GSE price did not fall on ex-divided day according to the theory but there was significantly rise in share price and the pattern continued even after ex-dividend day which means that there is no relationship between the price and ex-divided day. The effect of arbitrage set in as due to the sudden movement in the pattern of the share price. The whole method of the ex-dividend day test is to prove somehow the presence of not weak form efficiency in the market.

Olowe (1999) reported a result that was different from what this material recorded. According to his work he recorded that the Nigeria stock market was efficient using data between the periods of 1981 to 1992 from 59 randomly selected stocks on the Nigeria stock exchange. His result was able to prove that between these periods the market was a weak-form efficient. But in this report using data spanning from 2000 to 2010 on the All-share index indicated that the Nigeria stock market in inefficient in the weak form. The reason behind the two contradictory results can be traced down to so many factors. The tools involved in both work are different, the properties of the data are also different, and the economy situation of the country during those periods are also very different.

CHAPTER 7

CONCLUSION

Conclusion, evaluation of hypothesis

In this research work, the efficiency of the Nigeria stock exchange is tested, using a ten years from the Nigeria stock exchange the data rang from year 2000 to 2010. The need for the test for efficiency in the Nigeria market is important due to the interest of investors both local and international who are willing and want to know the state of the stock market in the country. The data provided from the exchange gave the opportunity to test for market efficiency in the weak form this is to show how information are reflected in the price of stock and also to find out if there exists any seasonal pattern in the economy that could lead to investors outsmarting the market. The seasonal pattern that this material documented in the week-day effect. It is to show that a particular day of the week generates higher return than other days of the week.

Logarithmic analysis tool, to evaluate the return on the data as far back as five days previous return and applies a set of statistical tools to examine how related the previous days prices are to the present day price of stocks. The use of regression analysis revealed that the Nigeria stock market is inefficient in the weak form as the result of the analysis showed that past record of price is reflected in the today's price. The result further showed that the price of previous stock was incorporated into today's price up to four previous days. However the fifth day return was not reflected in today's return.

Statistically fifty-two percent (52%) of yesterday's price is incorporated into today's price, eight percent (8%) of second day's price, negative eleven percent (-11%) of the third day's price and negative four percent (-4%) of the forth previous day's price were incorporated in today's price. On the average a total of seventy-one percent (71%) of last three day's returns comes into today's returns. This is evidence showing that the Nigerian market is inefficient. This result contradicts the work of some researchers such as Olowe (1999) who documented that the Nigeria market is efficient in the weak form.

The seasonal test carried out to show of any day of the week with exceptionally high return showed that there was no significantly a particular day that records a high return. The returns on Monday, Tuesday, Wednesday, and Friday recorded no significant effect as the value of the t-statistic is less than 1.65 (t<1.65). On the contrary the return on Thursday was negatively depressed. The value of t-statistic is greatly greater than 1.65. This shows that even as there are no days of the week with high return, the Thursday return shows that financial analyst will not want to sell on this particular day. They will also advice their client to watch out for Thursday's trading.

The above test result can be explained as to have possible cause in the regulation of the market. The financial market is an institution that is heavily regulated, rules and regulation are put in place to avoid any act of fraudulent act .In the developing countries like Nigeria this system is not properly managed. There are so many cases of corruption found in the financial market as a result the outcome from the analysis is not surprising

Limitation of current research

This research like every other one suffers some limitation. The method of analysis used is not enough to make a final judgement about the Nigeria stock market. In the test for week days seasonal pattern some other methods of analysis can reveal a different result from the one of this work. More test to show other effect like monthly effect and test on the bond market can help explain some properties of the market. In the area of market efficiency the market need to be tested comparing it with some other parameters in the market if the same result is seen then a final conclusion can be reached.

Recommendations for further work

The growth of the emerging markets is so much on the increase now. With credit meltdown the world is now focusing on countries which survived and how they managed to get immune against one of the greatest disaster in the history of the financial world. Nigeria market is one of the promising financial market in Africa, there is the possibility that it will grow to become a force in the financial world in the near future, it is therefore important for researchers to as a way of recommendation to study and documented every activities in the market.

For further work more analysis on every sector of the economy should be critically analysed, for investors to understand the activities of the market and want to come in and invest. Other areas such as the effect of the capital market on the economy, settlement period, dividend payout, and Holiday effect among few should be investigated to help strengthen the economy. The more work is gone on the market, the more the weakness of the market is revealed and as a result the regulations of the market becomes stronger thereby enhancing the development of the market.

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