IIARD International Institute of Academic Research and Development

IIARD INTERNATIONAL JOURNAL OF BANKING AND FINANCE RESEARCH (IJBFR )

E-ISSN 2695-1886
P-ISSN 2672-4979
VOL. 2 NO. 1 2016

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The Effect of Stock Market Liquidity on Daily Returns in the Nigerian Capital Market

John Okey Onoh

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Abstract

Adequate knowledge about the performance and efficiency of stock returns remains vital and essential information to investors. The ability to generate confidence among investors requires an understanding of the role liquidity 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 in hypotheses testing using three liquidity measurement methods. 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. The value of transaction ratio shows a negative and significant impact on the stock returns (VTr coefficient = - 8.51, p =0.00 < 0.05, t –value = 30). Turnover ratio is (Tor coefficient = 0.36, p = 0.00 < 0.05, t-value = 146.44.To add to the robustness of the analysis, unit root test, granger casuality tests and collinearity tests were employed to support the OLS method. Thus, the study recommends creation of new policies that will encourage increases in the profit after tax and dividends of quoted firm; studies have established statistically significant relationships between company performance and value of capitalization. Secondly, it recommends that investors should adopt trading volume based strategies to make profit. Thirdly, it suggests adoption of methods to reap from the benefits of abnormal returns by exploiting information in the market

keywords:

Liquidity; stock market; daily returns; Nigerian Capital Market

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