IIARD International Institute of Academic Research and Development

INTERNATIONAL JOURNAL OF ECONOMICS AND FINANCIAL MANAGEMENT (IJEFM )

E-ISSN 2545-5966
P-ISSN 2695-1932
VOL. 4 NO. 1 2019

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Measurement of Liquidity Effects on Stock Market Returns Using Market Capitalization Ratio – A Study of Zenith Bank Nigeria Plc

Gbalam Peter Eze (Ph.D)

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Abstract

The study focused on measuring liquidity effects of stock market returns on one of the leading quoted participant in the banking sector –Zenith Bank Plc which has performed consistently well within the banking subsector of the market. The methodology used was simple regression method. Again the variables were daily data from 2001 to 2017. The ALL Share Index when logged was a proxy for stock returns and the market capitalization ratio measured by value of shares traded divided by market capitalization multiplied by 100. The results showed that the coefficient of determination (R-square), which measures the goodness of fit of the model, indicates that 94.1 % of the variations observed in the dependent variable were explained by the independent variables. The result shows that market capitalization value ratio has a positive and significant impact on All Share Index. This study recommends that the Nigerian Securities and Exchange Commission should create policies that will encourage increases in firms profit after tax and their dividends as these variables have been statistically proven to have strong significances on the changes in the company’s performance and the value of market capitalization. Further attempts can be made to study the cross-sectional variation of stock liquidity and trading activity given the vulnerability of investors to unexpected market shocks. It is important that more research be made in studying theoretical and empirical applications of models measuring weighty risk management strategies such as portfolio rebalancing. As a risk control strategy knowledge of portfolio rebalancing can be seen where an informed investor acknowledges the usefulness of compounding effect of returns on his portfolio by calculating based on compound average and not simple average.

keywords:

Measurement, liquidity effects, stock market returns, market capitalization ratio and Zenith bank Nigeria Plc

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