Market Risk and Return on Shareholder's Fund of Deposit Money Banks in Nigeria

ABSTRACT: This study examined the effect of market risk on the return on shareholder’s fund of deposit money banks in Nigeria over a 14-year period (2010-2023). The research employed econometric techniques such as the ordinary least square method, descriptive statistics, and post-estimation diagnostics to analyze the relationship between market risk and return on shareholder’s fund of deposit money banks in Nigeria. Return on shareholder’s fund (RSF) was used as the indicator for financial performance, while inflation rate, interest rate, and exchange rate were used as proxies for market risk. Findings indicated that the inflation rate had a negative but statistically insignificant effect on RSF (β = -0.615666, p = 0.5658). The interest rate had a positive but statistically insignificant effect on RSF (β = 0.446195, p = 0.2294), and the exchange rate had a positive but statistically insignificant impact on RSF (β = 1.301086, p = 0.0876). The coefficient of determination (R²) indicates that about 38% of the variation in the return on shareholder’s fund of Nigerian deposit money banks can be explained by the inflation rate, interest rate, and exchange rate. The remaining 62% of the variation is due to other factors not accounted for in the model. The Durbin-Watson statistic of 2.264529 points to no potential autocorrelation in the model, suggesting that a significant portion (62%) of the variables affecting return on shareholder’s fund are missing from the analysis. The study concluded that market risks variables do not have a significantly effect on the return on shareholder’s fund of Nigerian deposit money banks. Based on these findings, it is recommended that banks should adopt more proactive strategies in identifying and managing market risks to reduce exposure and improve overall financial performance (RSF) of deposit money banks in Nigerian.