Estimation of Equity Betas in an Emerging Stock Market: The Nigerian Case

E Chuke Nwude

Asian Journal of Empirical Research, 2013, vol. 3, issue 6, 725-737

Abstract: This paper addresses a very important topic in corporate finance that is not well treated in many developing stock markets with particular reference to Nigeria. Beta is a major component of the capital Asset Pricing Model (CAPM) used in the determination of the required rate of return on equity but a very high percentage of the documented works done in this area have been carried out mostly in developed economies cum stock markets of America, Europe and Asia. However since we have need for stock market, there is also need to estimate equity betas which will be used to determine the required rate of return on equities traded in our markets in order to guide investors in making investment decisions. Therefore we calculated correlations of the annual bank stock returns from 2000-2011, a twelve year period with the entire market return otherwise called the (historical) betas of the listed banks in Nigeria.The paper discovered that the most volatile banking stock during the period of study is Oceanic bank with beta coefficient of 1.63 and the least volatile stock is Ecobank with beta coefficient of 0.32. Also noted is the fact that the stocks did not generate return symmetrically according their systematic risk levels.

Keywords: Beta; Equity beta; Historical equity beta; Required return to equity; Market return (search for similar items in EconPapers)
Date: 2013
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