Authors : Adeniyi Jimmy Adedokun and Solomon A. Olakojo
Abstract: This study investigates the empirical validity of Capital Asset Pricing Model (CAPM) developed by Sharpe and Lintner in the Nigerian Stock Exchange (NSE) using monthly stock values of 16 firms from the 20 most capitalized firms in Nigeria between the period of January, 2000 and December, 2009. The empirical findings indicate that the CAPM is inadequate to explain the role of asset risk for the determination of expected return on investment in Nigeria’s equity market. It established contrary to the hypothesis of the CAPM that higher risk is associated with higher asset return and asset price. This study, however, because of some deficiencies according to Jensen such as measurement and model specification error that may arise due to the use of proxies for variables does not authoritatively reject the CAPM. Basically, the study provides evidence against the CAPM but it does not provide evidence in support of any alternative model.
Adeniyi Jimmy Adedokun and Solomon A. Olakojo, 2012. Test of Capital Asset Pricing Model: Evidence from Nigerian Stock Exchange. Journal of Economics Theory, 6: 121-127.