Abstract
This study examined the effect of systemic risk on the dynamics of stock prices in Nigeria capital market. The objective was to investigate the dynamic effect of systemic risk on stock prices traded on the floor of Nigeria stock exchange. Time series data was sourced from Central Bank of Nigeria Statistical Bulletin from 1990-2017. Stock prices were modeled as the function of prices risk, liquidity risk, interest rate risk and exchange rate risk. Multiple regression with ordinary least square properties of co-integration was used to examine the relationship between the dependent and the independent variables. The study found price and liquidity risk have positive effect on stock price while interest rate and exchange rate risk have negative effect on stock prices of equities traded on Nigeria stock exchange. It concludes that systemic risk has significant effect on stock prices and recommends, among others, that the management of the capital market should ensure that the operating environment is risk minimum to ensure appreciable stock prices by developing strategies and policies aim at managing the systematic risk in the operating environment and engage a regular environmental impact assessment on systemic risk, to avert it’s negative effect on stock prices.
Highlights
The history of risk taken can be traced to the existence of man
The coefficient of price risk is 0.143241. This shows that price risk is positively related to stock prices of quoted firms in Nigeria that a unit increases in price risk is followed by an increase in stock prices in Nigeria
The coefficient of liquidity risk is 0.673035. This shows that liquidity risk is positively related to stock prices of quoted firms in Nigeria, that a unit increase in liquidity risk is followed by an increase in stock prices traded on the floor of Nigeria stock exchange
Summary
The history of risk taken can be traced to the existence of man. Relocating a tribe from one place to another in order to find food and hunting dangerous animals have been daily decisions in the pre-civilization era. The decisions at that time have been most probably based on historic data and gut feeling. This immeasurable justification on decisions stayed mostly the same on the historic era until the concept of probability was invented. While the gamblers that lived in Ancient Greece had the concept of numerals and could determine the number of possible outcomes they strongly believed that the outcome of games was determined by gods. Zigrand (2014) opined that the concept of modern arithmetic, numbers and symbols, came from Hindus during the Dark Ages and that it made the analysis of games possible in the 16th century While the gamblers that lived in Ancient Greece had the concept of numerals and could determine the number of possible outcomes they strongly believed that the outcome of games was determined by gods. Zigrand (2014) opined that the concept of modern arithmetic, numbers and symbols, came from Hindus during the Dark Ages and that it made the analysis of games possible in the 16th century
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