Risk Management And Portfolio Analysis In The Capital Market

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Risk Management And Portfolio Analysis In The Capital Market

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PROJECT TOPIC AND MATERIAL ON RISK MANAGEMENT AND PORTFOLIO ANALYSIS IN THE CAPITAL MARKET

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  • Name: Risk Management And Portfolio Analysis In The Capital Market
  • Type: PDF and MS Word (DOC)
  • Size: [70 KB]
  • Length: [56] Pages

 

 

 

CHAPTER ONE

GENERAL INTRODUCTION

1.1BACKGROUND OF THE STUDY

Following precedence on what Nigeria capital market has been like before the introduction of the Structural Adjustment programme (SAP). Ayadi (1983) highlighted that many companies could afford to ignore the capital market since they had vast pool of loanable funds to draw from.

However, according to the federal government gazette (1989), the introduction of SAP and certain policy measures such as the deregulation of interest rate, mopping up of excess liquidity were introduced with the measures, it becomes impossible for business organizations to borrow funds from the money market and as a result more companies are now turning to the capital market.

According to Samuels and Yaccounts (1981), the Nigerian Stock Exchange Market follows a random walk hypothesis. The problem with Ajayi’s work which was quite exhaustive is that his conclusions may not be valid anymore in the structural changes sweeping across Nigerian financial system.

Ekechi (1980), in a study of monthly returns between 1977 and 1987 of twenty companies quoted on the Nigerian Stock Exchange also found substantial support for the random walk hypothesis.

In an effort to refute the randomness of stock prices, Alexander (1964), tried to device some trading values solely on prices of a security moves up at least T percent from a subsequent high, at which time go short. The short position is maintained until the prices rises to at least Y percent above a subsequent low.

In order to appreciate the research work, it is better to briefly define the following terms; risk, portfolio and capital market with the content of financial management.

Blume (1978), defined risk “as the degree of profitability of occurrence assigned to an investing or financial decision from the observed knowledge of the part of existing events”. Where there are certain parameters of decision problem, whole value are impossible to fully specify in advance, we say, it is risky, better still, risky events are predictable and foreseeable only within the existence of some degree of confidence.

Unugbro (2004), “risk is the possibility of an adverse deviation from a desired outcome that is expected”.

Portfolio is a collection of investment for an investor. Portfolio can be collection of shares, for an investor property company his portfolio can be a collection of buildings.

For a financial manager of various projects, these will be fully expanciated in the subsequent chapter. It is a market which comprises of many participants which primarily deals with facilities of raising new capital for companies to survive and to enjoy operation in perpetuity.

1.2STATEMENT OF THE PROBLEM

How can an optimal risk portfolio on investment be attained?

And in carrying out evaluation analysis on capital structures, can it ensure a high return on the investment?

Can effective diversification of portfolio reduce all risks or not?

1.3OBJECTIVES OF THE STUDY

The objective of the study is to show in details how risks can be effectively managed and how varying portfolios can be analyzed to ensure high return on investment.

In relation to the statement of the problem, it is the objective of this research work that will effectively diversify away non market risks and as much as possible to monitor the non market risks which is to be represented with the Beta factor.

And finally to examine how earning criteria such as Earning Per Share (EPS), Market Value per share (M/v per share) and price earnings ration (PER) can be integrated in the management of risks.

1.4SCOPE OF THE STUDY

Conventionally, the scope of the study is restricted to the capital market and particularly to the stock market and the brokering firms.

1.5SIGNIFICANCE OF THE STUDY

The essence of the study is to be a benefit to people, each particular person needs to rely on this study for a specific reason. To be a potential equity investor and individual loan investor. It will help them in making effective investment and financial decisions. To the stock brokering firms, it will provide assistance for effective management of portfolio risks. The same benefit will be enjoyed by the financial analysts and staffs on the floor of the stock exchange market. It will help them to have objectives and speculative mind in order to follow the trend within the markets; others include the insurance companies, merchant banks, issuing houses etc.

1.6RESEARCH HYPOTHESES

Ho: the risk of an investment is related to the return on such investment.

Hi: the risk of an investment is related to the return on such investment

Ho: diversified portfolio cannot reduce all risks.

Hi: diversified portfolio can reduce all risks

Ho: management of risk cannot be attained in the capital market

Hi: management of risk can be attained in the capital market

1.7RESEARCH METHODOLOGY

The major sources of data used in the research study are thee primary and secondary data. The primary data was obtained from responses to personal interviews and questionnaires while the secondary data used extensively for the literature review include: journals, textbooks, newspaper, magazines, speeches and working papers. Most importantly, materials from previously published works of other scholars who had been involved in studies related to the risk management and portfolio analysis.

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