Tag Archives: Market Risk

Financial Risk and Financial Performance of Deposit Money Banks Listed in Nigeria (Published)

This study examined the effect of financial risks on performance of Deposit Money Banks DMBs) using the identified explanatory variables of financial risks, viz: Credit risks, Insolvency risks, Liquidity risks and Market risks covering a period of 12 years (2007- 2018).  The methodology of the study makes use of ex-post facto research design. While the population of the study were nineteen deposit money banks, the study sample comprised ten (10) DMBs. The panel regression models estimated using Unobserved Effects Model (UEM), while the result of the Hausman test indicated between fixed effect model and random effect model at 5% inference. The study findings showed that Credit Risk was negative and statistically significant to deposit money banks’ performance [β = – 13.0495; Pval = 0.013]. The result also shows that Liquidity Risk is inversely and insignificantly related to banks’ profitability [β = – 0.156; Pval = 0.6703] and Insolvency Risk (INSRK) have negative signs that are statistically insignificant to banks profitability [β = – 0.016; Pval = 0.745]. Market Risk has insignificant and positive effect on Profitability (NPBIT) [β = 0.038; Pval = 0.5720] at 0.05 level. Also, Credit Risk (CR) was found to be negative and statistically significant at Economic Value Added [β = – 7.0789; Pval = 0.006]. On the contrary, the result also shows that Liquidity Risk (LIQR) [β = 0.0264; Pval = 0.961] and Market Risk [β = 0.0369; Pval = 0.747] have positive signs that are statistically insignificant to Economic Value Added. On its part, Credit Risk (CR) established a negative and significant effect on Return on Assets [β = – 0.9647; Pval = 0.0421]. Liquidity Risk [β = – 0.0018; Pval = 0.8471] and Insolvency Risk [β = 0.0008; Pval = 0.7719] have negative and positive signs that are statistically insignificant to Return on Assets. In relation to the findings of the study, the study recommended amongst others that it is fundamental for DMBs in Nigeria to practice scientific credit risk management, improve their efficacy in credit analysis and loan management to secure as much as possible their assets, and minimize the high incidence of non-performing loans and their negative effects on financial performance

Keywords: Credit risk, Market Risk, Profitability, economic value added, financial risk, insolvency risk

Effect of Market Risks on the Financial Performance of Firms in Nigeria (Published)

Business operations are surrounded by different degrees of uncertainties (risks) ranging from market risks, financial risks and operating risks. This study has chosen to investigate one of the components of the risks (market risk) and to ascertain how the risks affect the activities of firms in Nigeria. Four hypotheses were formulated in line with the objectives of the study. The study employed causal research design and used secondary data. The research covers the twelve (12) firms listed under Oil and Gas sector on the Nigerian Stock Exchange. Secondary data were collected from Central Bank of Nigeria Statistical Bulletin and the financial statements of the firms which spanned from 2014 to 2018. The data were analysed with descriptive statistics, correlation and multiple regression analysis. The results therefrom indicate that exchange rate has significant effect on both ROA and ROE of Oil and Gas firms. Additionally interest rate has significant effect on ROE and insignificant effect on ROA. More results show that commodity price change has no significant effect on both ROA and ROE, also equity price change has no significant effect on ROA and ROE of firms in Oil and Gas sector in Nigeria. The study recommends among other things that the firms should adopt the use of hedging to control exchange rate changes and government should maintain a low interest rate that will aid firms increase their profitability.

Keywords: Exchange Rate, Market Risk, Oil price

The Application of the Capital Asset Pricing Model (CAPM) In the Nigerian Chemicals and Paints Industrial Sector (Published)

This paper calculated the (historical) betas of listed stocks in the chemicals and paints sector of the Nigerian Stock Exchange over a 13-year period (2000-2012). The beta estimation of listed stocks showed that the beta content of the entire sector ranges between 1.04% and -0.13 or between 6.78 and -2.31% providing an average beta content of 0.37 or 1.50% of the total risk for the sector. The results indicate that the unsystematic risk content in chemicals/paints sector stocks constitutes the bulk of the sector’s risk profile and that most of the stocks’ betas had defensive attributes over the study period. The investment implication is that including an appropriate mix of chemical and paints stocks in the investors’ portfolios would, ceteris paribus, help investors to achieve a combination of investments that are not highly correlated with larger economic cycle as well as higher-risk equity securities that can potentially yield higher returns than the market.

Keywords: Alpha Risk, Beta Risk, Capital Asset Pricing Model, Equity, Market Risk, Nigerian Stock Exchange, Systematic Risk, Total Risk, Unsystematic Risk, Volatility Level, beta