Obomeile Cyril, Okhumaile Selena Idowu, Philip Shakede Sanni

Keywords: Market microstructure, asymmetric information, security price, dealers puzzle, market makers.

Abstract

The trading of securities in the stock market is guided by various models
used by investors and traders. However, market efficiency is often hindered by factors such as asymmetric information and transaction costs. Price discovery remains a challenge, especially in markets lacking transparency and efficient structures. This study examines the applicability of the
Glosten-Milgrom model of market microstructure in the Nigerian banking
sector, focusing on how uninformed traders can overcome price discovery
challenges. The model was applied to stock prices from thirteen (13) deposit money banks for May 30th and 31st, 2022. The findings reveal that the model accurately predicted stock prices for six (6) banks, challenging
the random walk hypothesis. For the remaining seven (7) banks, the model
demonstrated that the next day’s stock price could be slightly higher or
lower than the current day’s price. Based on these findings, it is recommended that future research explore the applicability of other market microstructure models to further enhance price discovery and reduce information asymmetry in Nigeria’s securities market.

Author Biography

Obomeile Cyril, 

Department of Accounting and Finance, College of Management and Social Sciences, Glorious Vision University (Formerly Smauel Adegboyega University) Ogwa, Edo State, Nigeria

Email: [email protected]

Okhumaile Selena Idowu

Department of Banking and Finance, School of Financial Studies, Auchi

Polytechnic, Auchi, Edo State, Nigeria

Philip Shakede Sanni

Department of Accounting and Finance, Glorious Vision University Ogwa, Edo State, Nigeria

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