Valuation and pricing of equity securities: A test of CAPM in a developing market economy
Department of Economics, Saadatu Rimi University of Education Kano, Nigeria.
Research Article
World Journal of Advanced Research and Reviews, 2024, 22(01), 831–849
Article DOI: 10.30574/wjarr.2024.22.1.1105
Publication history:
Received on 01 March 2024; revised on 15 April 2024; accepted on 18 April 2024
Abstract:
The study is on valuation and pricing of equity securities. A test of CAPM in a developing market economy (2006-2020) The major aim of the study is to investigate the capability and relevance of CAPMt to equity prices in Nigeria stock market from 2006-2020 and show if the model empirical findings are in line with results obtained from the developed markets. The model concerned in the study is Capital asset pricing model (CAPM) by Sharp 1962. from (2006-2020) Using a sample of 62 companies derived from the eleven major sectors of the Nigeria economy and Using panel data analysis and valuation status analysis results showed that, CAPM demonstrated positive and in significant impact on stock return(RI) of the Nigeria stock market. These variables do not play role on explaining the movement in the value of stock return of the selected firms within the period, The result of the relationship between actual stock return (RI) and models calculated return obtained is dominated by under valuations and over valuations with few appropriately valued stocks which are insignificant in nature, again the r2 and coefficient of determination < 1 or even negative in some cases .p value >0.05, and the result obtained in Nigeria is not the same with that of the developed economy. It is therefore recommended that, portfolio managers and other financial analysts should not adopt CAPM, as a tool to examine, explain. predict or assess accurately return of stocks traded in the Nigeria stock market.
Keywords:
Pricing; Equity securities; CAPM; Stock market; Nigeria
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