Testing Arbitrage in the Nigerian Stock Exchange
Keywords:
Arbitrage, Stock Exchange, Runs Test, GMM, Cointegration Test
Abstract
Given the nature of price movements and returns in the stock market, fluctuations in secondary market prices should follow the same index returns. However, the emerging status of the Nigerian stock exchange presupposes that issues of inefficiencies may be rife. This study sets out to investigate the process, patterns and behaviour of arbitrage for the Nigerian Stock Exchange. Data covered the period 1985 to 2016 and the focus was on obtaining long term behaviour of the market with respect to information availability in the market. The general outcome of the study is that arbitrage is present in the market since there is wide-spread inefficiency of information distribution in the market. Thus, investors tend to take advantage of price or returns differential to make profits from trading in the market.
References
Adegboye, A.C. (2017). The Consumption-Oriented Capital Asset Pricing Model in the Nigerian Stock Exchange. CBN Journal of Applied Statistics, 8(2), 117-142.
Akram, Q.F., Rime, D. &Sarno, L. (2005). Arbitrage in the foreign exchange market: Turning on the microscope. Norges Bank Working papersNo 2005/12.
Arewa, A. & Nwakanma, P.C. (2013). An empirical test of factor likelihood arbitrage pricing theory in Nigeria. European Journal of Accounting Auditing and Finance Research, 1(4), 95-114.
Basu, S. (1983). The relationship between earning`s yield, market value and return for NYSE common stocks: further evidence. Journal of Financial Economics, 12 (1), 129-156.
Bohl, M., & Siklos, P. (2004). Empirical evidence on feedback trading in mature and emerging markets. Applied Financial Economics, 18 (17), 1379-1389.
Bondt, W. F. M. D., & Richard, T. R. (1985). Does the stock market overreact? The Journal of Finance, 40 (3), 793-805.
Cherry, J. (2004). The limits of arbitrage: evidence from exchange traded funds. Working Paper, University of California-Berkeley.
Damodaran, A. (2009). Avaliação de investimentos. (2. ed.). Rio de Janeiro: Qualitymark.
Dimson, E., & Mussavian, M. (2000). Market Efficiency. The Current State of Business Disciplines, 3, 959-970.
Dolvin, S. D. (2009). ETFs: Arbitrage opportunities and market forecasting. Journal of Index Investing, 1 (1), 107-116.
Fama, E. F. (1970). Eficient capital markets: a review of theory and empirical work. The Journal of Finance, 25 (2), 383-417.
Ferson, W.E. and Harvey, C.R. (1993) “The Risk and Predictability of International Equity Returns.” The Review of Financial Studies, Volume 6, number 3, pp. 527-566.
Gimba, V. K. (2012). “Testing the weak-form efficiency market hypothesis: Evidence from Nigerian Stock Market” CBN Journal of Applied Statistics Vol. 3 No.1
Grossman, S. J., A. Melino and R. Shiller (1987). Estimating the Continuous-Time Consumption-Based Asset-Pricing Model”, Journal of Business and Economic Statistics, 5(3): 315-327.
Grossman, S.J. and Stiglitz, J.E. (1976), “Information and Competitive Price Systems,” American Economic Review, 66, 246–252.
Hansen, L.P (1982) “Large Sample Properties of Generalized Method of Moments Estimators.” Econometrica, Volume 50, nº 4, pp. 1029-1054.
Jaffe, J., Keim, B. D., & Westerfield, R. (1989). Earnings yields, market values, and stock returns. The Journal of Finance, 44 (1), 135-148.
Lyons, R.K. (2001), The Microstructure Approach to Exchange Rates. Cambridge, USA: MIT Press.
Monogbe, T.G., Edori, IS. & Iki, B.A. (2016). The Application of Arbitrage Pricing Theory (APT) in the Nigeria Capital Market. IIARD International Journal of Banking and Finance Research, 2(1), 32-45.
O’Hara, M. (1995), Microstructure Theory. Oxford, UK: Blackwell Publishers.
Paavola R. (2007). Empirical Tests of Asset Pricing Models in Finnish Stock Market. Unpublished MSc. Thesis School of Business, Lappeenranta University of Technology.
Pratt, J. (1964), ``Risk Aversion in the Small and in the Large," Econometrica, 32, 122-137.
Rompotis, G. (2007). An empirical look on exchange traded funds. Working Paper, Athens Greece, University of Athens.
Ross, S., Westerfield, R., & Jordan, B. (2008). Fundamentals of corporate finance alternate value. (8th ed.). New York: Mc Graw Hill.
Thorp, E(2004). Statistical Arbitrage – Part II. In:Wilmott, Paul.
Uwubanmwen, A.E. & Obayagbona, J. (2012). Tests of the arbitrage pricing theory using macroeconomic variables in the Nigerian stock market. Ethiopian Journal of Economics, 21(1), 1-18.
Akram, Q.F., Rime, D. &Sarno, L. (2005). Arbitrage in the foreign exchange market: Turning on the microscope. Norges Bank Working papersNo 2005/12.
Arewa, A. & Nwakanma, P.C. (2013). An empirical test of factor likelihood arbitrage pricing theory in Nigeria. European Journal of Accounting Auditing and Finance Research, 1(4), 95-114.
Basu, S. (1983). The relationship between earning`s yield, market value and return for NYSE common stocks: further evidence. Journal of Financial Economics, 12 (1), 129-156.
Bohl, M., & Siklos, P. (2004). Empirical evidence on feedback trading in mature and emerging markets. Applied Financial Economics, 18 (17), 1379-1389.
Bondt, W. F. M. D., & Richard, T. R. (1985). Does the stock market overreact? The Journal of Finance, 40 (3), 793-805.
Cherry, J. (2004). The limits of arbitrage: evidence from exchange traded funds. Working Paper, University of California-Berkeley.
Damodaran, A. (2009). Avaliação de investimentos. (2. ed.). Rio de Janeiro: Qualitymark.
Dimson, E., & Mussavian, M. (2000). Market Efficiency. The Current State of Business Disciplines, 3, 959-970.
Dolvin, S. D. (2009). ETFs: Arbitrage opportunities and market forecasting. Journal of Index Investing, 1 (1), 107-116.
Fama, E. F. (1970). Eficient capital markets: a review of theory and empirical work. The Journal of Finance, 25 (2), 383-417.
Ferson, W.E. and Harvey, C.R. (1993) “The Risk and Predictability of International Equity Returns.” The Review of Financial Studies, Volume 6, number 3, pp. 527-566.
Gimba, V. K. (2012). “Testing the weak-form efficiency market hypothesis: Evidence from Nigerian Stock Market” CBN Journal of Applied Statistics Vol. 3 No.1
Grossman, S. J., A. Melino and R. Shiller (1987). Estimating the Continuous-Time Consumption-Based Asset-Pricing Model”, Journal of Business and Economic Statistics, 5(3): 315-327.
Grossman, S.J. and Stiglitz, J.E. (1976), “Information and Competitive Price Systems,” American Economic Review, 66, 246–252.
Hansen, L.P (1982) “Large Sample Properties of Generalized Method of Moments Estimators.” Econometrica, Volume 50, nº 4, pp. 1029-1054.
Jaffe, J., Keim, B. D., & Westerfield, R. (1989). Earnings yields, market values, and stock returns. The Journal of Finance, 44 (1), 135-148.
Lyons, R.K. (2001), The Microstructure Approach to Exchange Rates. Cambridge, USA: MIT Press.
Monogbe, T.G., Edori, IS. & Iki, B.A. (2016). The Application of Arbitrage Pricing Theory (APT) in the Nigeria Capital Market. IIARD International Journal of Banking and Finance Research, 2(1), 32-45.
O’Hara, M. (1995), Microstructure Theory. Oxford, UK: Blackwell Publishers.
Paavola R. (2007). Empirical Tests of Asset Pricing Models in Finnish Stock Market. Unpublished MSc. Thesis School of Business, Lappeenranta University of Technology.
Pratt, J. (1964), ``Risk Aversion in the Small and in the Large," Econometrica, 32, 122-137.
Rompotis, G. (2007). An empirical look on exchange traded funds. Working Paper, Athens Greece, University of Athens.
Ross, S., Westerfield, R., & Jordan, B. (2008). Fundamentals of corporate finance alternate value. (8th ed.). New York: Mc Graw Hill.
Thorp, E(2004). Statistical Arbitrage – Part II. In:Wilmott, Paul.
Uwubanmwen, A.E. & Obayagbona, J. (2012). Tests of the arbitrage pricing theory using macroeconomic variables in the Nigerian stock market. Ethiopian Journal of Economics, 21(1), 1-18.
Published
2021-05-07
How to Cite
[1]
Omojefe, G.O. and Oriakpono, A.E. 2021. Testing Arbitrage in the Nigerian Stock Exchange. International Journal on Integrated Education. 4, 5 (May 2021), 197-207. DOI:https://doi.org/10.17605/ijie.v4i5.1800.
Section
Articles
Copyright (c) 2021 Omojefe, Godfrey Oke
This work is licensed under a Creative Commons Attribution 4.0 International License.
In submitting the manuscript to the International Journal on Integrated Education (IJIE), the authors certify that:
- They are authorized by their co-authors to enter into these arrangements.
- The work described has not been formally published before, except in the form of an abstract or as part of a published lecture, review, thesis, or overlay journal.
- That it is not under consideration for publication elsewhere,
- The publication has been approved by the author(s) and by responsible authorities – tacitly or explicitly – of the institutes where the work has been carried out.
- They secure the right to reproduce any material that has already been published or copyrighted elsewhere.
- They agree to the following license and copyright agreement.
License and Copyright Agreement
Authors who publish with International Journal on Integrated Education (IJIE) agree to the following terms:
- Authors retain copyright and grant the International Journal on Integrated Education (IJIE) right of first publication with the work simultaneously licensed under Creative Commons Attribution License (CC BY 4.0) that allows others to share the work with an acknowledgment of the work's authorship and initial publication in this journal.
- Authors can enter into separate, additional contractual arrangements for the non-exclusive distribution of the International Journal on Integrated Education (IJIE) published version of the work (e.g., post it to an institutional repository or edit it in a book), with an acknowledgment of its initial publication in this journal.
- Authors are permitted and encouraged to post their work online (e.g., in institutional repositories or on their website) before and during the submission process, as it can lead to productive exchanges, as well as earlier and greater citation of published work.
1.png)
