Risk-Return Relationship in Nigerian Capital Market: Evidence from the Agricultural/Agro-Allied Sector (2000-2009)

Abstract

The purpose of this study is to ascertain from empirical data the risk-return relationship that exist in the Agricultural/Agro-Allied sector of the Nigerian Stock Exchange(NSE). To achieve the objective, the researcher collected the daily equity prices of the stocks from the NSE Daily Official List from which capital gain yields of various months of each year under study were computed. Dividends were extracted from the companies’ annual reports and accounts of each year under study from which dividend yields were computed. The standard deviation is the model used to determine the risk, while geometric mean was used to determine returns. The findings of the study established that on the average, of the five stocks that made the Agricultural/Agro-Allied sector, Afprint, Livestock Feeds, Presco, Okomu Oil Palm, and Okitipupa Oil Palm have beta of 1.23, 0.85, 0.69, 0.64, and 0.03 respectively. Okitipupa, Afprint and Okomu have strong positive risk-return relationship of 0.88, 0.80 and 0.74 with r² of 77.89, 64.65 and 55.09 percent respectively. The proportions of beta in the entire risk profile of the stocks were 5.76 percent in Afprint, 4.42 percent in Livestock Feeds, 3.63 percent in Okomu, and 6.21 percent in Presco. On the average, less than 10% of the total risk in an average common stock in the Agricultural/Agro-Allied sector is systematic risk. The unsystematic risk accounted for between 93.79 and 96.37 percent of the total risk. It was also established that the returns from Afprint were substantially attached to market return seconded by Livestock Feeds. This fact is also reflected in the distribution of beta coefficient in Afprint and Livestock Feeds.