Empirical Test of Market Microstructure Model in the Nigerian Stock Market
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Date
2022
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Publisher
IJMA
Abstract
This study undertakes a test of market microstructure. The trading of securities in the stock market is usually carried out with appropriate models by investors and traders. Most often, the market is not always efficient due to market frictions like asymmetric information and transaction costs. Price discovery could be herculean to traders if there is no efficient market architecture and particularly, the market transparency component. To investigate how uninformed traders could be freed from price discovery problems, this study employed the Glosten- Milgrom information asymmetry model. The stock prices of twenty five quoted companies for the month of May; specifically 9th and 10th, 2017 were used. The study findings indicate that the model predicted accurately the prices of stock of about four (4) listed companies, thus defiling the random walk movement, while for about twelve companies, the model did revealed how current day’s stock price can be a bit high or low of next day’s price. Conclusively, this study has significantly contributed to knowledge by revealing how investors / uninformed ones in the Nigerian Stock Market can be informed and have a foreknowledge of next day’s stock price prediction though with slight difference or variation from the prior day’s price. It is therefore recommended that future researchers should explore the applicability of other models with a view to contributing to price discovery and in the reduction of asymmetry of information in the trading processes in the security market in Nigeria
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Keywords
Market Microstructure, Asymmetric Information, Security price, Market transparency, Dealers Puzzle, Market makers
Citation
Ogbeide, S. O., & Umana, E. E. (Year of publication, if available). Empirical Test of Market Microstructure Model in the Nigerian Stock Market. International Journal of Management Applications, Volume Number(Issue Number), Page numbers. Retrieved from http://creativecommons.org/licenses/by/4.0/