Empirical studies of Nigeria’s foreign exchange parallel market II: Speculative efficiency and noisy trading
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Date
1997-11
Authors
AYOGU, MELVIN
Journal Title
Journal ISSN
Volume Title
Publisher
AERC
Abstract
Previous studies on the Nigerian parallel market found "return predictability". Based on
this finding, we quantify, using Hansen's GMM estimation technique, the risk-return
characteristics implicit in the simplest trading strategy of "buy and hold" an optimal
portfolio of currencies. The risk-return profile suggests that profitable trading opportunities found in the Nigerian market may not indeed be exploitable.
Also, we reexamine the evidence on the presence of destabilizing activities in the
Nigerian parallel market. Using the noise-trader approach, we find no significant evidence of bandwagon expectations that may drive prices gradually away from fundamentals.
The overall implication of our findings is clear. If the emerging characteristics of the
new autonomous market are similar to the parallel market that it seeks to absorb, then an activist intervention policy, based mainly on market-stability imperatives, should be
resisted strongly.
Description
HG 4267.6 A96 1997
Keywords
Foreign exchange market - Nigeria