Adaptive Market Hypothesis in Nigerian Stock Market: Stock Return Predictability and Market Conditions

It takes a theory to beat a theory. However, whether the Adaptive Market Hypothesis (AMH) offers better explanations for stock return behaviour than the popular Efficient Market Hypothesis (EMH) remains a question for serious empirical investigation. This lacuna informed the analyses of efficiency in the Nigerian Stock Exchange (NSE) market with a sample period spanning January 2000 to February 2017. Linear and non-linear methodologies such as variance ratio, autocorrelation, unit root tests, and nonlinear BDS tests were employed in the study. Evidence from the finding showed that the political party (PDP and APC) condition has no significant effect on return predictability except for low nonlinear predictability traceable to the PDP era. The study further revealed that inefficiency is higher in up than down market conditions and during volatile than in other periods. Thus, the study concluded that the Nigerian stock market is adaptive, varying in efficiency over time. The study recommended that government policies should be reviewed when due because it is one of the market conditions that determine the efficiency in the stock market since the market efficiency changes over time as the market condition changes.