EFFECT OF LIQUIDITY RISK ON LOW VOLATILITY ANOMALY IN NIGERIAN STOCK MARKET

The proposition of MPT and CAPM was that the higher the risk, the higher the return and vice versa. This was premised on the assumption of rationality of market participant and efficiency of the market. However, several studies have violated this assumption, and that led to the anomaly in the market which is popularly known as low volatility anomaly. This study examines the effect of liquidity risk on low volatility anomaly in the Nigerian stock market. The population of the study is all the quoted companies in the Nigerian Stock Exchange (NSE) for the period of ten years. The purposive sampling technique was used to select forty-one companies' stocks that are frequently traded throughout the study period. The data employed for this study are secondary data which were sourced from the NSE. Risk-free rate was proxied with treasury-bill rate, was sourced from Central Bank of Nigeria. The Ordinary Least Squares (OLS) technique was used. The study found that liquidity risk does not impact on low volatility anomaly in the Nigerian stock market. The study concludes that there is no strong relationship between liquidity risk and low volatility anomaly. This implies that liquidity risk is not an important driver of low volatility anomaly in the Nigerian stock market. The study recommends that investors and other stakeholders should maximise the opportunity of new information in the Nigerian stock market to trade in short-term investment horizon and avoid delay of the information because the market does not reward long-term investment horizon.