Moderating the effect of short selling strategy on the relationship between the risk and return in the Nigerian stock market
DOI:
https://doi.org/10.26565/2310-9513-2026-23-03Keywords:
Short selling strategy, Systematic Risk, Unsystematic Risk, Return, and Fama-French Two-Step regression approachAbstract
The study looked at how shot selling affected the link between risk and return in the Nigerian stock market. Secondary data was gathered from sources such as Standard & Poor's, NGX websites, and the CBN statistical bulletin. Fama-French Two-Step regression approach was used and it was found that short selling had a negative and statistically negligible influence on returns, according to the study. However, when used as a moderator, it lowered systematic risk slightly while improving the link between systematic risk and return in the Nigerian stock market. Short selling also lowered unsystematic risk and enhanced the link between unsystematic risk and return across multiple models. Unsystematic risk had a favorable and large impact on the Nigerian stock market's predicted returns. Unsystematic risk influenced predicted returns in the Nigerian stock market in a positive and significant way. According to the research, a short-selling investing technique can be implemented efficiently in the Nigerian stock market to maximize rewards while limiting risk. Unsystematic risk is not always diversified, but it demands a premium in the Nigerian stock market, since investors that take such risks are rewarded. The study advises investors to pay particular attention to how their investment returns correspond with several types of risk, such as unsystematic and non-market hazards, in addition to systematic risk. Implementing a well-managed short-selling investing plan can boost stock market performance.
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