Methodology:

The author of this article “Effect of Drawdown Strategy on Risk and Return in Nigerian Stock
Market” used the ordinary least squares method through the Fama-MacBeth regression method,
He took into consideration a population comprising 161 companies listed on the Nigerian Stock
Exchange (NSE) as of December 2020, it used an exposure factor research design and purposive
sampling technique with a sample of 90 regularly traded stocks for this analysis.

The data used in this study are as follows:

 Monthly stock prices

 The stock market index
 The risk-free rate which was replaced by the Treasury bill rate
 Participations
 Market capitalization
 The book value of equity
 Profit before interest and taxes
 Total assets

This study covered the period from 2005 to 2020, which was grouped into sub-sampling period,
while all data is obtained from the websites of the Nigerian Group of Exchange (NGX), Central
Bank of Nigeria (CBN ) and Standard and Poor. Therefore, the basic model chosen for this
investigation was the Fama five-factor model and the French model. Using 4 equations to solve
and each of the equations contains a number of variables such as: excess return on individual
assets, excess market return, size factor premium, simulation drawdown premium, drawdown
factor …

Discussion of results:

The results of this study show that withdrawal has a negative but significant effect on the
performance of the Nigerian stock market for the sub-period of 2013 to 2016. Whereas, the
results of the sub-period between 2005 and 2008 contradicts the entire sampled period as it
reveals that withdrawal has a positive and significant effect on the performance of the Nigerian
stock market. The results for the sub-periods 2009 to 2012 and 2017 to 2020 show that
withdrawal has a positive but insignificant effect on the performance of the Nigerian stock
market. So, we can summarize these results in the following diagram:

2009 to 2012 and 2017 to

From 2013 to 2016 From 2005 to 2008 2020

Positive effect,
Negative and Positive and
not significant
significant effect significant effect

Therefore, the importance of losses and their size in terms of returns are not stable over time.
This can be attributed to various economic uncertainties or shocks affecting the entire economy
and stock markets. Therefore, the results of this study can further be discussed based on the
research of previous studies, especially that of Fargo and Tedongap (2018), reveal that downside
risk is important in improving expected returns in the US market. This result is consistent with
the result this study focuses on the sub-period 2005 to 2008, but is contradicted by the whole
sample period and other sub-periods.

Also, Baghdadabad in 2018 is to improve the performance, he used average withdrawal as a

market timing strategy compared to traditional timing and he deduced that this strategy is
considered the best to achieve performance in portfolio construction than the traditional timing.
Thus, other researchers have confirmed that investors are rewarded for introducing downside risk
as a risk management tool because it has a positive and significant effect on returns in Pakistan
and the United States. Nevertheless, the study found that drawdown does not have a significant
effect on risk in the Nigerian stock market. Drawdown has a positive and significant effect on
volatility over the entire sample, while the sub-period result reveals a positive but insignificant
effect on volatility. The results of this study support the conclusions of Fargo and Tedongap
(2018) who demonstrated that this decline is correlated with the volatility of stock returns.