Testing the Semi-Strong Form of Efficiency Theory in the Nigerian Capital Market: The Input and Output Index

Abstract

This paper examines the semi-strong form of efficiency of the Nigerian capital market. Such examination is made in the context of whether information impounded in previous stock prices reflect current prices through the input and output index. Data for the study were from secondary sources and it spanned from 2005-2013. The population for this study encompasses all the companies that traded in the period of January 1, 2005 to December 31, 2013. All these companies are ranked according to their capitalization and a random sampling technique was employed to select the companies that have the capitalization values above the average value. Thus, about 80 companies qualified for this sample size. The study made use of transfer function model to estimate the market index which is represented by the output index and the computed selected securities represented by the input index which is tantamount to published information. Findings from the paper showed that publicly published information captured by the input index commands significant effect on the stock market represented by the output index hence making the Nigerian stock market to be semi-strong inefficient.

Keywords: Modified Transfer Function, Impounded information, Semi-Strong, Capital Market, Input-Output