Risk-Return Relationship in Equities: Evidence from the Automobile and Tyre Sector of the Nigerian Stock Exchange

Abstract

The purpose of this study is to ascertain from empirical data the risk-return relationship that exist in the Automobile and Tyre sector of the Nigerian Stock Exchange(NSE) with particular reference to Dunlop and R. T. Briscoe. 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 simple percentage analyses were used to determine returns. The study discovered that there was low positive linear relationship and marginal negative linear relationship between risks and returns in the Dunlop and R.T. Briscoe stocks respectively. Only 16.68 percent of the variations in the return from Dunlop can be explained by systematic risk and only 4.67 percent of the variations in R.T. Briscoe return were accounted for by systematic risk. Hence unsystematic risk accounted for at least 83.32 percent of the variations of returns in this sector.

Keywords: Risk, Return, Risk-Return relationship, Dividend yield, Capital gain yield, Market return.