Risk-Return Relationship in Nigerian Capital Market: Evidence from Nigerian Building Materials Sector (2000-2009)

Abstract

The purpose of this study is to ascertain from empirical data the risk-return relationship that exist in the BuildingMaterials sector of the Nigerian Stock Exchange(NSE). To achieve the objective, the researcher collected thedaily equity prices of the stocks from the NSE Daily Official List from which capital gain yields of variousmonths of each year under study were computed. Dividends were extracted from the companies’ annual reportsand accounts of each year under study from which dividend yields were computed. The standard deviation is themodel used to determine the risk, while geometric mean was used to determine returns. aThe findings of thestudy established that on the average, of the six stocks that made the Building Materials sector, WAPCO, AshakaCement, Benue Cement, CCNN, Nigerian Ropes, and Nigerian Wire have beta of 1.19, 1.17, 1.10, 0.76, 0.26,and 0.15 respectively. Nigerian wire and Benue cement have strong positive risk-return relationship of 0.98 and0.76 with r2 of 96.12 and 57.85 percent respectively. It is also established that on the average, 7.73% of thevariation in Building Materials sector common stocks price can be explained by variation in the market index. Inother words, less than 10% of the total risk in an average common stock in the Building Materials sector issystematic risk. The proportion of unsystemic risk is lowest in Nigerian Ropes with 82.72% while it is highest inNigerian Wire with 98.54%.