Measuring Daily Stock Market Returns using Market Capitalization Ratio in Nigeria
Abstract
Adequate knowledge about the performance and efficiency of stock returns remains vital and essential to investors. The ability to generate confidence among investors requires an understanding of the role market capitalization plays in the growth of daily returns of the Nigerian Stock Market. The study adopted the ex-post facto research design and data were obtained from daily reports of the Nigerian Stock Exchange from 2nd January, 2001 to 31st December, 2015. The study used the Ordinary Least Square (OLS) in hypotheses testing. The results revealed that the market capitalization value ratio has a positive and significant effect on stock returns (MCVr coefficient = 0.867, p = 0.00 < 0.05, t-value = 22.9). Apparently with F-statistic = 11271 the model is well fitted for the research, the goodness of fit of the model was further justified by 85.9% of the observations of the stock returns explained by the market capitalization ratio. Thus, the study recommends creation of new policies that will encourage increases in the profit after tax and dividends of quoted firms; this supports previous studies establishing statistically significant relationships between the value of capitalization and company performance on one hand and market performance on the other.References
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Ajayi, R.A. Mehdian. S & Perry M. J. (2004). The day-of-the-week effect in stock returns: Further evidence from eastern european emerging markets. Markets Finance & Trade, Vol. 40, No. 4, pp. 53-62.
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Arumugam S. (1997). Day-of-the-week effects in stock returns: Empirical evidence from indian equity market, Mimeo, UTI Institute of Capital Markets
Beck, T., Demirguc-Kunt, A., Levine, R and Maksimovic (2001). Financial structure and economic development: Firm, industry and country evidence, in: Financial structure and economic growth: A cross- country comparison of banks, markets and development, Cambridge, MA: MIT Press: pp. 189-242
Berument, Hakan and Kiymaz H., (2001). The day of the week effect on stock market volatility, Journal of Economics and Finance, 25(2), pp 181-193
Brooks, C. (2002). Introductory econometrics for finance: Cambridge University Press, New York, U.S.A
Campbell J.Y and Ludger H (1992). No news is good news: an asymmetric model of changing volatility in stock returns, Journal of Financial Economics, 31. pp. 281 - 318
Choudhry T. (2000). Day of the week effect in emerging asian stock markets: Evidence from the GARCH model, Applied Financial Economics, 10, pp 235 – 242
Demetriades, P.O., and Hussein, K. A (1996). Does financial development cause economic growth? Time series evidence from sixteen countries, Journal of development economics, 51, pp 387-411
Dimitri V and Jiang W (2012). Market liquidity: Theory and empirical evidence, The Paul Woolley Centre Working Paper Series no. 32, financial markets group discussion paper no 709 p 415 -891.
Engle, R.F and Bollerslev T (1986). Modeling the persistence of conditional variance, Econometric Review, 5, 1-50.
Equakun, C.O. (2005). The nigerian capital market: impact on economic growth, Unpublished University of Benin Master’s Thesis, Benin city.
Engle, R. (1982). Autorregressive conditional heteroskedasticity with estimates of united kingdom inflation”, Econometrica, 50:987-1008
Fama, E.F (1965). The behaviour of stock market prices, Journal of Business, Vol. 38, No. 1, pp. 34-105
Fama, E.F (1970). Dividend yield and expected stock returns on stocks and bonds, Journal of Financial Economics, 22: 3-25
Fama E.F. (1970). Efficient capital markets: a review of theory and empirical work, Journal of Finance 25, pp 383-417
Fields M. J. (1931). Stock prices: a problem in verification, Journal of Business, 7, pp 415 – 418
Geert. B and Guojun. W (1997). Assymetric volatility and risk in equity markets. National Bureau of Economic Research 1050, Massachusetts avenue, Cambridge, ma 02138
Granger, CW.J (1987). Investigating causal relations by econometric models and cross spectral methods, Econometrica, 37: 428-438
Guha Deb, S. and Mukherjee, J. (2008). Does stock market development cause economic growth? a time series analysis for indian economy, International Research Journal of Finance and Economics, Issue 21, pp 142-149
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Gupta, R.and Basu P.K (2007). Weak form efficiency in indian stock markets, International Business & Economics Research Journal, vol. 6, no. 3, pp 234-241
Hinich, M.J. and Patterson D.M (1985). Evidence of nonlinearity in daily stock returns, Journal of Business and Economic Statistics 3 : 69-77
Ho R. and Cheung Y (1994). Seasonal pattern in volatility in asian stock markets, Applied Financial Economics, 4, pp 61 – 67
Khan,S.U., Rizwan, F. (2008). Trading volume and stock returns: evidence from pakistan’s stock market. International Review of Business Research Papers, vol.4, 151-162.
Kim, E. H. and Singal V (1993). Opening up of stock markets by emerging economies: effects on portfolio flows and volatility of stock prices, in portfolio investment in developing countries, World Bank Discussion Paper no.228 ed. by stijn claessens and sudarshan gooptu, washington: world bank 383-403
Kletzer, K. and Pardhan, P. (1987). Credit markets and patterns of international trade, Journal of Development Economics, 27, pp. 27-70
Lakonishok J. and Levi M (1982). Weekend effects on stock returns: a note, Journal of Finance, 37, pp 883 – 889
Levine, R., and Renelt, D. (1992). A sensitivity analysis of cross country growth regressions, American Economic Review, 82, 942-63
Levine, Ross and Zervos, S. (1998). Stock markets, banks, and economic growth, American Economic Review, 88, pp. 537-58
Lucas, R. E., Jr. (1988). On the mechanics of economic development, Journal of Monetary Economics, 22, pp. 3-42
Nelson, D.B (1991). Conditional heteroskedasticity in asset returns: a new approach, Econometrica, 59:323-70
Okereke-Onyiuke, N. (2000). Stock market financing options for public projects in nigeria, The Nigerian Stock Exchange Fact Book, 41–49.
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Onodugo, Vincent A., Kalu, Ijeoma. E. & Anowor, Oluchukwu F. (2013). Financial Intermediation and Private Sector Investment in Nigeria. Research Journal of Finance and Accounting (Impact Factor: 6.26). 4 (12), 47–54.
http://www.iiste.org/Journals/index.php/RJFA/article/view/7758/7792
Onwumere, J.U.J (2005). Business and economic research method, lagos: don-vinton limited
Osinubi, T. S., and L. A. Amaghionyeodiwe (2003). Stock market development and long-run growth in nigeria, Journal of African Business, vol. 4(3), pp. 103-129.
Peiró A. (1994). Daily seasonality in stock returns: further international evidence, economics letters, 45, pp 227 – 232
Pesaran, M. H. and Smith, R.(1995). Estimating long run relationship from dynamic heterogeneous panels”, Journal of Econometrics, 68, pp. 79-113.
Rahman, M.L (2009). Stock market anomalies: day of the week effect in dhaka stock exchange, International Journal of Business Management, 4(5):193-206.
Robinson, J. (1952). The generalization of the general theory, in the rate of interest and other essays, london: macmillan.
Rutterford, J. (1993). Introduction to stock exchange investment, second edition, london: the macmillan press Ltd.
Westerfield, D. (1985). Evaluating the effects of day of the week effect in an emerging stock exchange, Journal of Financial Development, vol 9, no 2, pp 45-67.
Sarr A and T Lybek (2002). Measuring liquidity in financial markets”, IMF Working Paper WP/02/232.
Schumpeter, J.A., (1911). The theory of economic development, Harvard university press, cambridge, MA, USA.
Toda, H.Y. and Yamamoto T. (1995). Statistical inference in vector autoregressions with possibly integrated processes, Journal of Econometrics, 66, pp. 225-250
Akgiray, V.(1989). Conditional heteroskedasticity in time series of stock returns: Evidence and forecasts, Journal of Business 62(1):55-80
Ajayi, R.A. Mehdian. S & Perry M. J. (2004). The day-of-the-week effect in stock returns: Further evidence from eastern european emerging markets. Markets Finance & Trade, Vol. 40, No. 4, pp. 53-62.
Amihud, Y. (2002). Illiquidity and stock returns: Cross-section and time-series effects, Journal of Financial Markets 5 (2002) 31–56.
Anowor, Oluchukwu F. & Okorie, George C. (2016). A Reassessment of the Impact of Monetary Policy on Economic Growth: Study of Nigeria. International Journal of Developing and Emerging Economies, 4(1), 82-90. http://www.eajournals.org/wp-content/uploads/A-Reassessment-of-the-Impact-of-Monetary-Policy-on-Economic-Growth-Study-of-Nigeria.pdf.
Anowor, Oluchukwu F. & Agbarakwe, Henry U. (2015). Foreign Trade and Nigerian Economy. Developing Country Studies. 5 (6), 77-82.
http://www.iiste.org/Journals/index.php/DCS/article/view/20923/21167
Arumugam S. (1997). Day-of-the-week effects in stock returns: Empirical evidence from indian equity market, Mimeo, UTI Institute of Capital Markets
Beck, T., Demirguc-Kunt, A., Levine, R and Maksimovic (2001). Financial structure and economic development: Firm, industry and country evidence, in: Financial structure and economic growth: A cross- country comparison of banks, markets and development, Cambridge, MA: MIT Press: pp. 189-242
Berument, Hakan and Kiymaz H., (2001). The day of the week effect on stock market volatility, Journal of Economics and Finance, 25(2), pp 181-193
Brooks, C. (2002). Introductory econometrics for finance: Cambridge University Press, New York, U.S.A
Campbell J.Y and Ludger H (1992). No news is good news: an asymmetric model of changing volatility in stock returns, Journal of Financial Economics, 31. pp. 281 - 318
Choudhry T. (2000). Day of the week effect in emerging asian stock markets: Evidence from the GARCH model, Applied Financial Economics, 10, pp 235 – 242
Demetriades, P.O., and Hussein, K. A (1996). Does financial development cause economic growth? Time series evidence from sixteen countries, Journal of development economics, 51, pp 387-411
Dimitri V and Jiang W (2012). Market liquidity: Theory and empirical evidence, The Paul Woolley Centre Working Paper Series no. 32, financial markets group discussion paper no 709 p 415 -891.
Engle, R.F and Bollerslev T (1986). Modeling the persistence of conditional variance, Econometric Review, 5, 1-50.
Equakun, C.O. (2005). The nigerian capital market: impact on economic growth, Unpublished University of Benin Master’s Thesis, Benin city.
Engle, R. (1982). Autorregressive conditional heteroskedasticity with estimates of united kingdom inflation”, Econometrica, 50:987-1008
Fama, E.F (1965). The behaviour of stock market prices, Journal of Business, Vol. 38, No. 1, pp. 34-105
Fama, E.F (1970). Dividend yield and expected stock returns on stocks and bonds, Journal of Financial Economics, 22: 3-25
Fama E.F. (1970). Efficient capital markets: a review of theory and empirical work, Journal of Finance 25, pp 383-417
Fields M. J. (1931). Stock prices: a problem in verification, Journal of Business, 7, pp 415 – 418
Geert. B and Guojun. W (1997). Assymetric volatility and risk in equity markets. National Bureau of Economic Research 1050, Massachusetts avenue, Cambridge, ma 02138
Granger, CW.J (1987). Investigating causal relations by econometric models and cross spectral methods, Econometrica, 37: 428-438
Guha Deb, S. and Mukherjee, J. (2008). Does stock market development cause economic growth? a time series analysis for indian economy, International Research Journal of Finance and Economics, Issue 21, pp 142-149
Gujarati, D.N. and Porter D.C (2009). Basic econometrics fifth edition, Mcgraw- Hill International Edition, Singapore.
Gupta, R.and Basu P.K (2007). Weak form efficiency in indian stock markets, International Business & Economics Research Journal, vol. 6, no. 3, pp 234-241
Hinich, M.J. and Patterson D.M (1985). Evidence of nonlinearity in daily stock returns, Journal of Business and Economic Statistics 3 : 69-77
Ho R. and Cheung Y (1994). Seasonal pattern in volatility in asian stock markets, Applied Financial Economics, 4, pp 61 – 67
Khan,S.U., Rizwan, F. (2008). Trading volume and stock returns: evidence from pakistan’s stock market. International Review of Business Research Papers, vol.4, 151-162.
Kim, E. H. and Singal V (1993). Opening up of stock markets by emerging economies: effects on portfolio flows and volatility of stock prices, in portfolio investment in developing countries, World Bank Discussion Paper no.228 ed. by stijn claessens and sudarshan gooptu, washington: world bank 383-403
Kletzer, K. and Pardhan, P. (1987). Credit markets and patterns of international trade, Journal of Development Economics, 27, pp. 27-70
Lakonishok J. and Levi M (1982). Weekend effects on stock returns: a note, Journal of Finance, 37, pp 883 – 889
Levine, R., and Renelt, D. (1992). A sensitivity analysis of cross country growth regressions, American Economic Review, 82, 942-63
Levine, Ross and Zervos, S. (1998). Stock markets, banks, and economic growth, American Economic Review, 88, pp. 537-58
Lucas, R. E., Jr. (1988). On the mechanics of economic development, Journal of Monetary Economics, 22, pp. 3-42
Nelson, D.B (1991). Conditional heteroskedasticity in asset returns: a new approach, Econometrica, 59:323-70
Okereke-Onyiuke, N. (2000). Stock market financing options for public projects in nigeria, The Nigerian Stock Exchange Fact Book, 41–49.
Onodugo, Vincent. A., Kalu, Ijeoma. E., Anowor, Oluchukwu F. & Ukwueni, Nnaemeka. O. (2014). Is Capital Flight Healthy for Nigerian Economic Growth? An Econometric Investigation. Journal of Empirical Economics (Impact Factor: 0.71). 3(1),10-24. http://www.rassweb.com/wp-content/uploads/PDF/JEE/Vol-3/Issue-1/Paper%202.pdf.
Onodugo, Vincent A., Kalu, Ijeoma. E. & Anowor, Oluchukwu F. (2013). Financial Intermediation and Private Sector Investment in Nigeria. Research Journal of Finance and Accounting (Impact Factor: 6.26). 4 (12), 47–54.
http://www.iiste.org/Journals/index.php/RJFA/article/view/7758/7792
Onwumere, J.U.J (2005). Business and economic research method, lagos: don-vinton limited
Osinubi, T. S., and L. A. Amaghionyeodiwe (2003). Stock market development and long-run growth in nigeria, Journal of African Business, vol. 4(3), pp. 103-129.
Peiró A. (1994). Daily seasonality in stock returns: further international evidence, economics letters, 45, pp 227 – 232
Pesaran, M. H. and Smith, R.(1995). Estimating long run relationship from dynamic heterogeneous panels”, Journal of Econometrics, 68, pp. 79-113.
Rahman, M.L (2009). Stock market anomalies: day of the week effect in dhaka stock exchange, International Journal of Business Management, 4(5):193-206.
Robinson, J. (1952). The generalization of the general theory, in the rate of interest and other essays, london: macmillan.
Rutterford, J. (1993). Introduction to stock exchange investment, second edition, london: the macmillan press Ltd.
Westerfield, D. (1985). Evaluating the effects of day of the week effect in an emerging stock exchange, Journal of Financial Development, vol 9, no 2, pp 45-67.
Sarr A and T Lybek (2002). Measuring liquidity in financial markets”, IMF Working Paper WP/02/232.
Schumpeter, J.A., (1911). The theory of economic development, Harvard university press, cambridge, MA, USA.
Toda, H.Y. and Yamamoto T. (1995). Statistical inference in vector autoregressions with possibly integrated processes, Journal of Econometrics, 66, pp. 225-250
Published
2017-02-16
How to Cite
ONOH, John Okey et al.
Measuring Daily Stock Market Returns using Market Capitalization Ratio in Nigeria.
GOUNI Journal of Management and Social Sciences, [S.l.], v. 4, n. 2, p. 188-203, feb. 2017.
ISSN 2550-7265. Available at: <http://journal.gouni.edu.ng/index.php/fmss/article/view/23>. Date accessed: 10 may 2018.
Issue
Section
Articles
Keywords
Market Capitalization Ratio; Stock Returns; Nigerian Stock Exchange; All Share Index
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