Sectoral Application of Asset Pricing Models on the Nigerian Stock Exchange: A Comparative Approach

Taofeek Agbatogun and Olowe Ayodeji R. ()
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Olowe Ayodeji R.: University of Lagos

Acta Universitatis Danubius. OEconomica, 2019, issue 15(3), 402-416

Abstract: The study applied both Capital Asset Pricing Model and Arbitrage Pricing Model on the valuation of stocks returns in the Nigerian stock exchange to make portfolio decision using both time series and cross sectional data form. Step by steps are followed with the aid of regression analysis to obtain the necessary value needed for informed decision making from the listed firms on the stock market from January 2007 to January 2017. Contrary to the theoretical expectation, results show over valuation using both models despite statistically significant at 1% in aggregate level and differential on the sectoral overview. Hence, it was concluded that most stocks are over-valued with the more accurate method of APT method because it has higher accuracy rate than CAPM and such asset should not be retained for long period of time to avoid waste of fund and investors and traders of investment in Nigerian Stock Exchange are advised to take utmost interest in sectoral performance when policy prescriptions concerning portfolio decision are looked into.

Keywords: Stock returns; Capital Asset Pricing Model; Arbitrage Pricing Theory; Portfolio Management; Investment (search for similar items in EconPapers)
Date: 2019
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