Nature of Beta in the Nigerian Stock Market – Challenges and Prospects

The paper appraise the nature of beta in the Nigeria stock market and the impact of Beta on Investors’ wealth maximization strategy in the Nigerian Stock Market. Ex-pos facto was iused to design the research as secondary data from the Nigerian stock market was deemed fit for the study. The study also indicated that there is a strong relationship between the firms’ Stock Return and Beta Coefficient. Finally, the study established that Beta Coefficient has a significant effect on the Stock Return of Firms Listed on the Nigerian Stock Exchange. Three years data collected (from January 2017 to December 2019) from the database of the Nigeria Stock Exchange was used to estimate the coefficient of the stocks’ betas. The data collectected were monthly price rates of the stocks, the All Share Index monthly rates and the Nigeria Treasury Bills monthly rates. The All Share Index is used to calculate the market returns and the Treasury Bills used as the risk free rate. To carryout the data analysis, returns were calculated for stocks and the market. Regression Analysis wss then to regress the stocks’ returns against the market returns in order to estimate the beta coefficient using the CAPM (Capital Asset Pricing Model) theory: Ri=Rrf + Bi (Rm-Rrf). The result showed that Guanranty Trust Bank, Ashaka Cement, Dangote Cement, Flour Mills Nigeria plc and Northern Nigeria Flour Mills plc have higher risk (beta) of investment than the other stocks meaning they are more volatile than the market and the other stocks that have beta value les than one (1), thence higher expected retuns. It is, therefore, recommended that Investors should invest in these mentioned Companies with higher risk as higher risk is synanimous to higher returns in order to maximise their returns.


Introduction
Investment in Stocks is sound financial decision especially where the need of the Investor is to grow his savings over a long term. Embarking on any human endeavor is tantamount to plunging into some kind of risk, which is of various degrees. Every investment carries one risk or the other. This existential reality is more pronounced in the quest for wealth through investment in stock markets. The stock market offers investors the opportunity to invest in securities of quoted firms such investment could be in fixed income isecurity e.g. Preference shares, debentures, etc. Or they could be inequities. Each of these securities offer returns to investors, depending on firms' risks and the nature of the stock invested on. Generally, the higher the risk, the higher the return, all things being equal (Oludoyi, S. B. [8]).
Most individuals and institutional investors invest and stocks in anticipation of returns (Monetary benefits). This anticipation of returns could occasionally lead to massive rate of subscription of several public offers. With limited amount of resources at the disposal of these investors, the major problem confronting them will be where to place their limited resources that will maximize their future benefits. In addition, most investors in the Nigerian Stock Market do not probably possess the adequate analytical skills to evaluate the performance of the quoted firms in terms of risk characteristics associated with the returns (Richard, B. [12]).

Statement of Problem
Financial reforms to aid the Nigeria stock exchange market was focused on further liberalization of banking business; ensuring competition and safety of the system and proactively positioning their nterrelation with the capital market to boost financial intermediation. Some of these financial reforms includes: the formation of Second Tier Securities Market (SSM) established in 1985 geared to streamline the role of ithe Nigeria Stock Exchange market to cater for small and medium sized ndigenous enterprise to gain access to the iresources iat the capital market for expansion and modernization. Furthermore, the Central Securities Clearing System (CSCS) was institutionalized to provide an integrated central depository, iclearingi (electronic entry transfer of shares from seller to buyer) and payment for bought securities for all stock market itransactions. It was incorporated as a subsidiary of the Nigeria Stock Exchange to obviate the inherent ibottlenecks in the transaction process in the capital market and commenced operations in 1997.
To this end, the CSCS is to implement a computerized Stock Exchange Management System (SEMS), which emphasizes immobilization of share certificates in the central depository and elimination of the bottlenecks between registrars and company executives in issuing new certificates to iinvestors and reduce the risk of return on investments. Risk taking is the fundamental concerns of investors, whether local or foreign. The nature and behavior of beta since its amplification by Sharpe in 1963 have occupied the attention of financial researchers as this.

Objectives of the Study
The objective of the study is to examine the nature of Beta. Its prospects and challenges in the Nigeria Stock Market and the specific objectives are: (i). Critically examine the Betas and their nature of quoted stocks in the Nigeria stock market (ii). Determine the benefits of betas and its applications in portfolio building on the Nigerian Stock Market (iii). Examine the impact of estimated beta on the investors wealth on the Nigerian Stock Market.

Research Hypotheses
The research study would, therefore, have the following hypothesis; stated in Null (Ho) form: Ho 1 : there is no significant relationship between nature of beta and quoted stocks in the Nigerian Stock Market Ho 2 : there is no significant relationship between the application of betas and the benefits of betas in the development of Nigerian Stock Market.
Ho 3 : There is no significant relationship between the estimated betas and investors`s wealth on the Nigerian Stock market.

Literature Review
The independent variable of the study is the Nigeria Stock Exchange and the dependent variable is the Beta Coefficient. The Nigeria Stock Exchange (NSE) was established in 1960, and trading activity in most of the time until 1995 iinvolved government bonds. The NSE has seen a significant growth following capital market liberalisation involving development in equities trading and financial market reforms in 1995. Market capitalisation soared from US$ i3.6 billion in 1996 itoa record value of US$ 86.3 billion in 2007, representing a rise of 2297%.
Capitalisation as a proportion of GDP rose from 16.7% to 75.3% in the same period. Although the NSE has a large number of listed equities, over 200, its trading iactivities have been relatively low and illiquid (2.6% turnover in 1996 and 13.8% in 2007 (Girard & Sinha, [4]).
Abdullahi, I. B [1] showed that the two markets that determine to a large extent the directions and level of economic growth within an ieconomy, apart from other factors such as political, social and environmental factors, are the money and capital markets. The stock market is a medium through which funds can be mobilized and channeled efficiently. It enables the government and industries to finance new and existing projects, expanding and modernizing industrial commercial concern. I Idyu et al., [5] researched to determine the level of impact on the growth of the Nigerian industrial sector for the period 1990 2009. The ordinary least square (OLS) estimation technique was adopted using SPSS version 16.0) statistical computers software to evaluate the three objectives. The results showed (i) a positive significant impact of the market capitalization on industrial sector component of the gross domestic product and (ii) a positive significant impact of the market capitalization on average capacity utilization rates of the manufacturing sector. The result however showed (iii) a positive but non-significant impact of the annual market capitalization on industrial loans of the stock exchange. It was therefore concluded that every effort must be made by government and market operators to make the market viable and result oriented to further improve the economy. The results showed the significant correlations of stocks returns in each market industry with ASI. Nonlinear LSTM dynamics are found to be significant, with significant bull and bear betas in the overall and each of the sub-samples. We find in particular, that the Petroleum, Finance, and Food and Beverages sector equities to be of higher investment risk within the study period.
Prince C. Nwachukwu [11] researched on the random movement of beta coefficients over time and across market phases, using monthly stock returns from Nigerian Stock Exchange (NSE). The study showed that beta coefficients move randomly around a trend line when the market is upbeat, whereas they tend to be less volatile in the down market. However, a long-run equilibrium relationship between the return on the individual security and beta components is evident in the two markets. Based on these findings we recommend that investors should arbitrage between these markets and take advantage of price differentials to earn riskless profit.
Wilson E. Hebert et al., [15] estimated (historical) betas of listed stocks in the chemicals and paints sector of the Nigerian Stock Exchange over a 13-year period (2000-2012). The results indicated that the unsystematic risk content in chemicals/paints sector stocks constitutes the bulk of the sector's risk profile and that most of the stocks' betas had defensive attributes over the study period.
Oborkhale Christopher [7] examined the nature of beta in the Nigeria Stock Exchange for the period of five years between 2001 and 2005. The study showed that the market was dominated by stocks with low risk profile which means the market was dominated by defensive stocks.
Vetiva Fund Managers Ltd [14] showed in their seminar paper that investing is the trade-off between risk and expected return. In general, therefore, it is assumed that assets with higher risks give a possibility of higher expected returns.

Theoretical Review
Portfolio Theory and Capital Market Oke, B. O [9] showed in Journal that the Modern Portfolio Theory (MPT) is the fundamental brainwork of Professor William F. Sharpe, a Winner of the 1990 Nobel Prize in Economics. The genesis of his classic work on CAPM is traceable to his doctoral dissertation topic, Portfolio Analysis Based on a Simplified Model of the Relationships Among Securities, in 1961. Since then, CAPM has become not just an authoritative and often-cited theoretical framework but also a linchpin of modern investment theory. His dissertation dwelt on the positive theory of securities market behavior, in particular with the securities market line relationshipiunder the restricted conditions of a one-factor model. The conclusions drawn from his dissertation constituted a basis both in terms of title and contents of the Capital Asset Pricing Model (CAPM) (Chan and Chui, [3]). Professor William F. Sharpe is most celebrated for his development of the Capital Asset Pricing Model. In an interview with Jason Zweig of Money Magazine published in Econ Journal Watch, Sharpe was asked to summarize his work. He responded: I wanted to answer why people act in certain ways when they invest and how risk and return are irelated. The bottom line: Yes, Virginia, some investments do have higher expected returns than others. Which ones? Well, by and large they're the ones that will do the worst in bad times (Sharpe, 2007).

Empirical Review
Adetunji et al [2] in their study "Forecasting Movement of the Nigerian Stock Exchange All Share Index using Artificial Neural and Bayesian Networks" madeuse of daily stock prices; these are the opening price, high price, low price, closing price, volume and the All-Share index of the Nigeria Stock Exchange market. This study is actually a comparative study of the predictive ability of Artificial Neural and Bayesian Networks using the Nigerian stock exchange data Attempts at providing explanations to the poor empirical results on the return-beta relationship

Methodology
Three years data collected (from January 2017 to December 2019) from the database of the Nigeria Stock Exchange was used to estimate the coefficient of the stocks' betas. The data collectected were monthly price rates of the stocks, the All Share Index monthly rates and the Nigeria Treasury Bills monthly rates. The All Share Index is used to calculate the market returns and the Treasury Bills used as the risk free rate. To carryout the data analysis, returns were calculated for stocks and the market. Regression Analysis wss then to regress the stocks' returns against the market returns in order to estimate the beta coefficient using the CAPM (Capital Asset Pricing Model) theory: Ri=Rrf + Bi (Rm-Rrf) developed by Professor Sharp, W. F [13].

Formulas and Model Specification
In statistical terms, beta represents the slope of the line through a regression of data points from an individual stock's returns against those of the market. Beta is used in Capital Assets Pricing Model (CAPM), which describes the relationship between systematic risk and expected return for assets, particularly stocks.
Where: R e = the return on an individual stock R m = the return on the over all market 1. Covariance = how changes in a stock's return is related to changes in ihe market's returns 2. Variance = how far the market's own returns spread out from itheir average value.
Where: P 0 = Initial Stock Price P 1 = Ending Stock Price (Price 1) D = Dividends Amathematical model was developed based on the proxies specified for the dependent variable; Beta iCoefficient.
Where: Co = Beta Coefficient i 01 = the intercept of the regression model StRt = Stock Return GDP = Gross Domestic Product EPS = Earnings Per Share

Data Presentation
The data sources are mainly from the Nigerian Stock Exchange (NSE) Fact Book, Annual Financial Reports of some firms listed on the Nigerian Stock Exchange and data from Bureau of Statistics.

Descriptive Statistics
The Beta Coefficient can be interpreted as follows: i. = 1: Exactly as volatile as the market ii. 1: More volatile than the market iii.
1 0: Less volatile than the market iv. = 0: Uncorrelated to the market v.
0: Negatively correlated to the marke

Results
Twenty Five Companies were randomly selected and analysized based on the availability of data. Table 1 shows the estimated beta coeeficient for the companies and their volatility in relation to the market. The market beta is taking as 1.   This study has established that Beta Coefficient has a significant effect on the Stock Return of Firms Listed on the Nigerian Stock Exchange. Also, that Beta Coefficient has no any significant effect on the Nigerian Economy Growth.
Hypothesis I: 'There is no significant relationship between nature of beta and quoted stocks in the Nigerian Stock Market'. The R-square value is 0.89; it means that the model has successfully predicted the variables. This implies that 89% changes in the firms' Stock Returns are explained by the changes in Beta Coefficients of the firms. The value of 86% of the Adjusted R-squared value indicates that there is a strong relationship between the firms' Stock Return and Beta Coefficient. Finally, the P-value (Probability F-statistic) is 0.014983, less than 0.05. We therefore, reject the null hypothesis and conclude that there is significant relationship between nature of beta and quoted stocks in the Nigerian Stock Market.
Hypothesis II: 'There is no significant relationship between the application of betas and the benefits of betas in the development of Nigerian Stock Market'. The R-square value is 0.11; it means that the model has not successfully predicted the variables. This implies that 11% changes in the firms' Gross Domestic Product are explained by the changes in Beta Coefficients of the firms. The value of -19% of the Adjusted R-squared value indicates that there is a weak and a negative relationship between the firms' Earnings per Share and Beta Coefficient. Finally, the P-value (Probability F-statistic) is 0.588771, greater than 0.05. We therefore, accept the null hypothesis and conclude that there is no significant relationship between the application of betas and the benefits of betas in the development of Nigerian Stock Market' Hypothesis III: 'There is no significant relationship between the estimated betas and investors`s wealth on the Nigerian Stock market. The R-square value is 0.002; it means that the model has not successfully predicted the variables. This implies that 0.00% changes in the firms' Gross Domestic Product are explained by the changes in Beta Coefficients of the firms. The value of -33% of the Adjusted R-squared value indicates that there is a weak and a negative relationship between the firms' Beta Coefficient and Gross Domestic Product. Finally, the P-value (Probability F-statistic) is 0.934843, greater than 0.05. We therefore, accept the null hypothesis and conclude that There is no significant relationship between the estimated betas and investors`s wealth on the Nigerian Stock market.

Discussion of Findings
The study established that 89% changes in the firms' Stock Returns are explained by the changes in Beta Coefficients of the firms. The study also indicated that there is a strong relationship between the firms' Stock Return and Beta Coefficient. Finally, the study established that Beta Coefficient has a significant effect on the Stock Return of Firms Listed on the Nigerian Stock Exchange. However, these results are consistent with the study conducted by Porter and Ezze [10] who investigated the stability of beta using monthly data on returns for the period of April 1996 to march 2000. iLarge iand iwell iestablished ienterprises iare iin ia iprivileged iposition ibecause ithey ican imake iinvestment ifrom iretained iearnings iand ibank iborrowings, iwhile inew icompanies ido inot ihave ieasy iaccess ito ifinance. iWithout ibeing isubjected ito ithe iscrutiny iof ithe istock imarket, ibig ifirms iget ibigger iand ifor ithe iemerging ismaller icompanies, iretained iearnings iand ifresh icash iinjections ifrom ithe icontrolling ishareholders imay inot ibe iable ito ikeep ipace iwith ithe ineeds ifor imore iequity ifinancing iwhich ionly ian iorganized imarket iplace icould iprovide i (Popoola, i2014). I

Conclusion
It is important to know the risk-return characteristics of quoted firms such as Guanranty Trust Bank, Ashaka Cement, Dangote Cement, Flour Mills Nigeria plc and Northern Nigeria Flour Mills plc have higher risk (beta) of investment than the other stocks meaning they are more volatile than the market and the other stocks that have beta value les than one (1), thence higher expected retuns. The firms with betas greater than 1 are referred to as aggressive companies while those with betas less than 1 are referred to as defensive companies.
Regression Analysis was used to determine the beta of the stocks. The stock returns were considered as dependent variables and are the Y -variables, while all share index was considered as the market return (the independent variables) and are X -variables. The outcome was subsequently presented and analysed.

Recommendations
i. Stocks' Betas should be periodically estimated, particularly between two to three years, and made accessible to the Investors and other Stakholders in order to aid in optimal investment decision making; especially for portfolio building. ii. Investors, portfolio managers and other investing stakeholders should develop investment strategies towards market and regularly review these strategies to make sure they are line with their business objectives. iii. Investors should invest in the Companies with higher risk such as Guanranty Trust Bank, Ashaka Cement, Dangote Cement, Flour Mills Nigeria plc and Northern Nigeria Flour Mills plc, in order to maximise their returns. This is because higher risk is synanimous to higher returns.