1 BEHAVIOUR OF STOCK MARKET RETURNS IN TWO WEST AFRICAN CAPITAL MARKETS: A MARKOVIAN ANALYSIS by Dr. (Mrs) Rosemery Obasi Deprtment of Accounting Benson Idohsa University, Edo State, Nigeria robasi@biu.edu.ng & Dr. Sadiq Rabiu Abdullahi ACA, FCFA, FIICA, ATMFA Department of Accounting, Faculty of Social & Management Sciences, Bayero University, Kano, Nigeria srabdullahi.acc@buk.edu.ng & IGBASHIO, Joshua Ayila M.Sc. Accounting Student Benson Idohosa University, Edo State, Nigeria Abstract This paper examined the behaviour of stock market returns using Markov chains.It specifically aimed at examining the extent to which Markov Chains can be used to predict the behaviour of stock market returns in the Nigerian and Ghanaian equity Markets. To achieve this, the paper adopts longitudinal survey research design, data were collected about stock returnsat different points in time without any attempt on the part of the researcher to influence the data. The sample of the study is made up of two west African bourses, Nigeria and Ghana. A census of the Morgan Stanley Capital International (MSCI) Barra aggregate stock market index for the Nigerian and Ghanaian stock market returns is used as a sample for the study. The study uses a Markov Chain model to test the random walk hypothesis of stock prices. A modified version of the chi square (U 2 ) test statistics was run at 5% level of significance for the vector and individual process Markov Chains. The results show stock returnsare random and not in line with the direction which the probability vector indicate. One possible explanation for this occurrence is that different companies are affected at different times by new information that could produce significant differences in the runs and in the large reversal patterns among daily stock price. The paper recommends amongst other that, efforts should be made by the Central Bank, Securities and Exchange Commission and other appropriate agencies to ensure that there is enabling environment for firm to operate; and passive investment strategy which make no attempt to beat the market by investors is recommended. Keywords: Market behaviour, African bourses, Stock market Return, Stock market index