Behavioural Finance and Asset Pricing Anomalies in the Nigerian Stock Market: A Theoretical and Empirical Contribution

Asset pricing anomalies in the Nigerian stock market, including momentum, value, size, and calendar effects, challenge the efficient market hypothesis and suggest that behavioural finance theories may better explain Nigerian equity price dynamics. This study makes original theoretical and empirical contributions to the application of behavioural finance in explaining asset pricing anomalies in the Nigerian capital market. A theoretical framework integrating prospect theory, overconfidence bias, herding behaviour, and limited arbitrage theory is developed to explain the persistence of pricing anomalies in a market characterised by high retail investor participation and concentrated ownership. The framework generates testable hypotheses about anomaly persistence, correction speed, and the moderating role of investor sophistication. Empirically, 20 years of daily stock price and trading volume data (2003 to 2022) for all continuously listed equities on the Nigerian Exchange Group are analysed using Fama-MacBeth cross-sectional regression, bootstrapped momentum portfolio construction, and a novel investor sentiment index constructed from Google Trends and social media data. Results confirm statistically significant momentum (6-month return predictability: t = 3.42), size (small-cap premium: 4.8% per annum), and calendar anomalies (January effect significant at p < 0.01). The investor sentiment index significantly predicts short-term market returns (R2 = 0.14). Behavioural biases, particularly herding, explain a larger share of return predictability than fundamentals-based factors. The study contributes an original behavioural asset pricing model calibrated for the Nigerian market structure, advancing the frontier of capital market research in West Africa. Keywords: behavioural finance, asset pricing anomalies, Nigerian stock market, momentum, investor sentiment