<abstract xmlns="http://www.w3.org/1999/xhtml">

<p>The study examined effect of drawdown on return in the Nigerian stock market and it covered the period of 2005 to 2020. Purposive sampling was employed and the sample size comprising 90 regularly traded stocks were used for the analysis. Monthly data sourced from the CBN statistical bulletin and Nigeria Stock Exchange on stock prices, market index, risk-free rate ownership shareholdings, market capitalization, book value of equity, earnings before interest and taxes, total assets and drawdown were used for study. The Fama-MacBeth two-step regression method was employed. The study found that the drawdown has a negative and significant effect on stock returns but has a positive and significant effect on risk in the Nigerian stock market over the whole sample period. Findings also revealed that the sub-periods are not stable in terms of the magnitude of effect and significance on risk and return. Our findings contradict the a-priori expectation that drawdown could improve performance through risk minimization and return maximization in the Nigerian stock market. Based on the findings, investors and other market participant are encouraged to use drawdown as one of the investment performance measures to guide investors’ expectation and their tolerance on the size of stock market disruption or crashes or rallies in Nigeria.</p>
</abstract>

The study examined effect of drawdown on return in the Nigerian stock market and it covered the period of 2005 to 2020. Purposive sampling was employed and the sample size comprising 90 regularly traded stocks were used for the analysis. Monthly data sourced from the CBN statistical bulletin and Nigeria Stock Exchange on stock prices, market index, risk-free rate ownership shareholdings, market capitalization, book value of equity, earnings before interest and taxes, total assets and drawdown were used for study. The Fama-MacBeth two-step regression method was employed. The study found that the drawdown has a negative and significant effect on stock returns but has a positive and significant effect on risk in the Nigerian stock market over the whole sample period. Findings also revealed that the sub-periods are not stable in terms of the magnitude of effect and significance on risk and return. Our findings contradict the a-priori expectation that drawdown could improve performance through risk minimization and return maximization in the Nigerian stock market. Based on the findings, investors and other market participant are encouraged to use drawdown as one of the investment performance measures to guide investors’ expectation and their tolerance on the size of stock market disruption or crashes or rallies in Nigeria.

Effect of Drawdown Strategy on Risk and Return in Nigerian Stock Market

Financial Markets, Institutions and Risks (FMIR)

This work is licensed under the Creative Commons Attribution 4.0 International License.

{"article-title":"Effect of Drawdown Strategy on Risk and Return in Nigerian Stock Market"}

The study examined effect of drawdown on return in the Nigerian stock market and it covered the period of 2005 to 2020. Purposive sampling was employed and the...

Effect of Drawdown Strategy on Risk and Return in Nigerian Stock Market

Publié en ligne: 29 oct. 2022

Pages: 71 - 82

Reçu: 17 juin 2022

Accepté: 25 août 2022

DOI: https://doi.org/10.21272/fmir.63.71-82.2022

Mots clés
drawdown, risk premium, return, volatility, positive news, negative news

© 2022 Anthony Olugbenga Adaramola et al., published by Sciendo

This work is licensed under the Creative Commons Attribution 4.0 International License.

Effect of Drawdown Strategy on Risk and Return in Nigerian Stock Market

Publié en ligne: 29 oct. 2022

Pages: 71 - 82

Reçu: 17 juin 2022

Accepté: 25 août 2022

DOI: https://doi.org/10.21272/fmir.63.71-82.2022

Mots clésdrawdown, risk premium, return, volatility, positive news, negative news

© 2022 Anthony Olugbenga Adaramola et al., published by Sciendo

This work is licensed under the Creative Commons Attribution 4.0 International License.

Mots clés
drawdown, risk premium, return, volatility, positive news, negative news