TESTING THE MARKET MICROSTRUCTURE MODEL: EVIDENCE FROM THE NIGERIA BOURSE
TESTING THE MARKET MICROSTRUCTURE MODEL: EVIDENCE FROM THE NIGERIA BOURSE

Summary/Abstract: This study tested the market microstructure model in the Nigeria stock market. Time series data on market capitalization, market activities, price inverse, risk of previous stock and bid-ask price suggested by Rolls model (1965) from 1986 to 2019 were sourced from CBN statistical bulletin. Preliminary test of descriptive statistic, ADF unit root test were carried out on the variables of interest. The co-integration technique and Error Correction Model Methodology were used to determine the short run dynamics and long run equilibrium relationship between bids-ask spread and it determinants. Findings show that risk and market capitalization appear to explain most of the variability in the bid-ask spread in the Nigerian stock market. Thus, this study concludes that asset prices need not equal full information expectations of value because of a variety of market frictions and diffusional factors.

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