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Economic Risk Factors And Expected Return: Evidence From Upside And Downside Market Conditions In Nigeria

Author

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  • Abraham Oketooyin GBADEBO

    (Osun State University, Osogbo, Faculty of Management Sciences, Department of Banking and Finance)

  • Yusuf Olatunji OYEDEKO

    (The Federal University of Oye-Ekiti, Faculty of Management Sciences, Department of Banking and Finance)

Abstract

This paper examines the economic risk factors and expected return, emphasizing Nigeria's upside and downside market conditions. The study adopted an experimental research design. All the quoted companies in the Nigerian Stock Exchange (NSE) served as the population from December 2005 to December 2018. The study espoused a purposive sampling method to select 41 companies' stocks frequently traded throughout the study period. The study employed purely secondary from NSE Factbook of various issues and Central Bank Statistical Bulletin. The dependent variable (stock prices from NSE Factbook while the macroeconomic factors (Inflation, exchange rate, monetary policy rate, oil price, and money supply) were from the Central Bank of Nigeria's annual statistical bulletin. The paper used the Ordinary Least Squares (OLS) technique in estimating their parameters both at the first and second pass regression models. Findings revealed the existence of observed and unobserved risk factors in the upside and downside market in Nigeria. The study also documents that economic risk significantly commands a market premium in both the upside and downside market phase. Besides, the finding observed that factor likelihood appears to be superior to the macroeconomic variable model. The study concluded that economic risk factors significantly explain average returns variations in the Nigerian capital market, notably when the market scaled downward. The research suggests that investors in the Nigerian capital market should consider: financial, diversifiable risks, and unobservables in the determination of expected returns.

Suggested Citation

  • Abraham Oketooyin GBADEBO & Yusuf Olatunji OYEDEKO, 2021. "Economic Risk Factors And Expected Return: Evidence From Upside And Downside Market Conditions In Nigeria," Theoretical and Empirical Researches in Urban Management, Research Centre in Public Administration and Public Services, Bucharest, Romania, vol. 16(2), pages 72-88, May.
    • Handle: RePEc:rom:terumm:v:16:y:2021:i:2:p:72-88
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    References listed on IDEAS

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    1. Stephen A. Ross, 2013. "The Arbitrage Theory of Capital Asset Pricing," World Scientific Book Chapters, in: Leonard C MacLean & William T Ziemba (ed.), HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part I, chapter 1, pages 11-30, World Scientific Publishing Co. Pte. Ltd..
    2. John Lintner, 1965. "Security Prices, Risk, And Maximal Gains From Diversification," Journal of Finance, American Finance Association, vol. 20(4), pages 587-615, December.
    3. Javed Iqbal & Aziz Haider, 2005. "Arbitrage Pricing Theory: Evidence From An Emerging Stock Market," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 10(1), pages 123-139, Jan-Jun.
    4. William F. Sharpe, 1964. "Capital Asset Prices: A Theory Of Market Equilibrium Under Conditions Of Risk," Journal of Finance, American Finance Association, vol. 19(3), pages 425-442, September.
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    Cited by:

    1. Yusuf Olatunji Oyedeko & Olusola Segun Kolawole & Isah Ibrahim & Olena Zharikova, 2023. "Risk-Return Relationship in the Nigerian Stock Market: Comparative between Fama-French Five-Factor Model and Higher Moment Fama-French Five-Factor Model," Oblik i finansi, Institute of Accounting and Finance, issue 1, pages 68-78, March.

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