Pricing Higher-Order Moment Systematic Risks in the Nigerian Stock Market: Empirical Analysis from Moment-CAPM, Moment-FF3F and Moment-FF5F

Yusuf Olatunji Oyedeko (), Aruna Ishola Mamidu () and Olusola Segun Kolawole ()
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Yusuf Olatunji Oyedeko: Federal University Oye-Ekiti
Aruna Ishola Mamidu: Achievers University
Olusola Segun Kolawole: Babcock University

EuroEconomica, 2023, issue 1(42), 62-77

Abstract: The goal of this research is to evaluate the influence of higher-order moment systematic risks on stock return utilizing Moment-CAPM, Moment-FF3F and Moment-FF5F in the Nigerian stock market. The research sample 90 equities listed on the Nigerian Group of Exchange as of December 2020. The research covers the period of January 2005 to December 2020 and Fama-MacBeth regression was utilized as the estimating approach. Evidence from the outcome demonstrated that coskewness risk has positive substantial influence on return under the three-moment factor CAPM, four-moment FF3F and six-moment FF5F. This shows that the coskewness risk is considerably priced in the Nigerian stock market and this means that coskewness risk demand premium. Also, this conclusion was reinforced by the fact that the incorporation of coskewness risk greatly increases the explanatory capacities of the normal CAPM, FF3F and FF5F models. However, it was discovered that the cokurtosis risk has positive significant influence on return under the sevenmoment FF5F whereas the cokurtosis risk has positive negligible effect on return under three-moment factor CAPM, four-moment FF3F. Considering this, the research indicated that larger moment systematic risks are also predictors of asset return in the Nigerian stock market which must be taken into account in risk-return decision making process. Thus, the research indicates that in the process of making investment choice, the investors should retain positive skewness risk factor since it would raise the anticipated return and negative kurtosis which has positive influence on stock return.

Keywords: Higher-Order Moment Systematic Risks; Moment-CAPM; Moment-FF3F; Moment-FF5F (search for similar items in EconPapers)
Date: 2023
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