Authors : E. Chuke Nwude, Elias I. Agbo and Bamidele Oyakhiromhe Agbadua
Abstract: This study addresses a very important topic in corporate finance that is not well treated in many developing stock markets, particularly Nigeria. Beta is a major component of the Capital Asset Pricing Model (CAPM) used in the determination of the required rate of return on equity. A very high percentage of the documented works done in this area have been carried out mostly in developed economies such as the stock markets of America, Europe and Asia. Since, we have the need for stock markets, there is also the need to estimate equity betas which will be used to determine the required rate of return on equities traded in our markets in order to guide investors in making investment decisions. Based on this need, we estimated the (historical) betas of the listed stocks in the airlines, automobile, road and maritime sectors of the Nigerian Stock Exchange from 2000-2012 a 13 years period. From the estimation of beta for the listed stocks, it was discovered that the maximum of 17.47% of Airlines services sector’s total risk was explained by the market risk which is called beta and therefore non-diversifiable. The <5% of the total volatility in automobile sector was explained by the market fluctuations while that of the road transport sector hung around 15.21% and that of the maritime sector had a maximum of 16% beta content. This implies that the bulk of the risk in these sectors is constituted by unsystematic, idiosyncratic, non-market determined and specific diversifiable risk. Hence, we suggest that some corrective measures have to be embarked upon in order to reduce noise in the rates of return of these stocks.
E. Chuke Nwude, Elias I. Agbo and Bamidele Oyakhiromhe Agbadua, 2016. Risks of Equities Listed in the Airlines, Automobile, Road and Maritime Sectors of the Nigerian Stock Exchange. International Business Management, 10: 5463-5474.