Efficient Market Hypothesis (Emh) and Nigerian Capital Market: An Analysis of Bonus Issues and Dividend Announcement

Description

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Abstract

The study examined the efficient market hypothesis and Nigerian capital market in relation to information contained in dividend and bonus issues announcement to ascertain the speed at which the market adjusts to all the relevant available information on share prices of the listed firms in the main board market.

To estimate the speed of adjustment of daily share prices of 33 sampled firms listed in the market in semi-strong form, market model developed by Fama (1969) is employed.

From the findings, the study reveals positive and significant abnormal returns (ARs) for most of the days around the 41-days event window (-20, 0, +20).

The evidence shows that share prices of main board market do not adjust quickly to dividend and bonus issues announcements thus, suggesting that the market is not efficient in semi-strong form.

Introduction

Market efficient hypothesis states that market prices fully and instantaneously reflect all relevant available information in determining security prices and that it is not possible for market participants to consistently and purposefully outperform a given market using any information that is already known by the market.

This implies that market efficiency is consistent with a market in which (a) there are no transactions costs in trading securities, (b) all available information is costless to all market participants, and (c) all participants in the market are rational in decision, suggesting that all agree on the implications of current information for the current price.

In such a market, the current price of a security obviously “fully reflects” all available information. But the speed and manner in which the market adjusts to the relevant information on dividend and bonus issues declaration, has been punctuated by untimely release of information and poor behaviour of the authorities.

The excruciating influence of timidity that could emanate from insecurity of investors due to the intending insider trading and fall in investors’ confidence, deters trading activities and the performance of the market.

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