ECONOMIC RISK FACTORS AND EXPECTED RETURN: EVIDENCE FROM UPSIDE AND DOWNSIDE MARKET CONDITIONS IN NIGERIA

Abraham Oketooyin Gbadebo () and Yusuf Olatunji Oyedeko ()
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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

Theoretical and Empirical Researches in Urban Management, 2021, vol. 16, issue 2, 72-88

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.

Keywords: Arbitrage Pricing Theory; economic risk factors; expected return; upside market; downside market . (search for similar items in EconPapers)
Date: 2021
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