IS CAPM A GOOD PREDICTOR OF STOCK RETURN IN NIGERIAN AIRLINES/AUTOMOBILE/ROAD/MARITIME SECTORS STOCKS?

Abstract

This research is on testing the predictive power of Capital Asset Pricing Model (CAPM) as enunciated by Sharpe (1964) in the determination of the required rates of return of Nigerian airlines services, automobile and tyre, road transport, and maritime stocks that coincides with the actual rates of return. As it were, there is no clear cut understanding on the belief with particular reference to Nigerian airlines services, automobile and tyre, road transport, and maritime stocks. In the light of the above assertion, the objective of this study is to find out the required rate of return of Nigerian airlines services, automobile and tyre, road transport, and maritime stocks from 2000-2012 and compare them with the actual rates of return in the corresponding periods to identify the valuation status of the stocks. Being an empirical study, analytical research design was adopted. The data used were secondary data, which were collected from the financial statements of the subject-firms, Nigerian Stock Exchange publications and Central banks of Nigeria publications. From the findings, there is no single correct prediction on all the stocks return by the CAPM.

Keywords: Risk-free rate of return, historical equity beta, historical equity market risk premium, CAPM required rate of return to equity, actual equity return, actual market return, market risk, and valuation status.