[Testing the significance of weak form and day of the week effect of the Nigerian stock exchange]

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Testing the significance of weak form and day of the week effect of the Nigerian stock exchange

Financial Crisis of 2007 and Nigerian Stock Market

On the basis of the economy of Nigeria, the 2007 financial crisis impacted the market of foreign exchange. It's characterized to the repatriation and disinvestment of dividends and capital by foreign investors thus foreign currencies' demand increased. This additionally led to a reduction of the external reserves. The banking sector had an affect of contraction of credits due to reduction of credit lines and exposure of exchange rate by the most of the foreign banks and the consistent reduction in the NSE affected the profitability of banks. Secondly, the reduction in the revenue receipts by government's three tiers, lead to a tightening in the financial sector. The tightening of the financial sector caused crowding-out of the credit from private sector.

On the basis of the evaluation done by the Ministerial Conference on Financial Crisis (2008), the Nigerian financial segment had been in receipt of $15.73 billion US Dollars in flows of portfolio alone in the year 2007 (Sere-Ejembi, 2008). With the appearance of the 2007 financial crisis in the world, foreign investments started withdrawing holdings from the stock market that result in caused flight of capital from NSE. The portfolio holdings' withdrawals, given the market size, caused major instability and rapid decline in the prices of stock across the NSE.

Previous to the financial crisis, prices of stock had appreciated exclusive of any association with any market fundamental. IN the period from 2002 to 2008, the capitalization in NSE rose to get to N12.6 trillion on March, 2008. That bullish trend led to rushing investments by all kind of investors. Customers of banks took out loans to have investment in stocks market. Then the fund's withdrawal by the foreigners led to the enormous decline of prices of most stocks due to excess suply.

Data Analysis

Run Test Analysis

The basic purpose of the run test is to determine the serial correlation in the data which in finance is a highly significant factor because time series data highly depends on the autocorrelation. The results of the analysis show that there is a serious autocorrelation in the data which has been found through the run test. The results of the output are placed below obtained from MS Excel:

 

Run Statistic

P - value

FIRST BANK

7.2346

0.0044

UNION BANK

6.2455

0.0003

ZENITHBANK

14.2561

0.0165

AFRICAN PETROLEUM

18.5641

0.0003

MOBIL OIL

54.4849

0.0031

TOTALFINAELF

29.5661

0.0006



The results of the analysis shows that the run statistic is highly significant for FB because the p<0.05, showing there exist a serious autocorrelation i.e. its previous distributive lags are highly dependent on it. Similarly, the case is with the other banks showing extreme autocorrelation between the data because p<0.05. The prices movement is therefore have sheer dependency on its lag as well the autoregressive analytical model. The banks in Nigeria are moving in the direction towards the stable price movements but the autocorrelation is disturbing that achievement to occur at the ...