Arbitrage Pricing Theory and Sectorial Stock Return: A Multi-Dimensional Data Evidence of Nigeria Manufacturing Sector
Vol.6 Issue 3
This study examined the effect of arbitrage pricing model on stock return of quoted manufacturing firms in Nigeria. Time series data were sourced from Central Bank of Nigeria Statistical Bulletin, Nigeria Stock Exchange Reports from 1987-2019. Stock market return of the manufacturing firms was modeled as the function of real gross domestic product, inflation rate, exchange rate, Treasury bill rate, money supply and interest rate. The study employed multiple regression models to estimate the relationship that exists between arbitrage pricing model and sectorial stock return. Ordinary Least Square, Augmented Dickey Fuller Test, Johansen Co-integration test, normalized co-integrating equations; parsimonious vector error correction model and pair-wise causality tests were used to conduct the investigations and analysis. The model found that 72.2 percent variation in stock return of the manufacturing sector was explained by arbitrage pricing model. From the model the study conclude that Treasury bill rate, inflation rate and exchange rate have positive relationship on the manufacturing sector stock return. The study concludes that the variables were stationary at first difference and integrated in the order of 1(1). Findings of the study further conclude that the variables are linearly co-integrated while there were causal relationships among the variables in the estimated model. The study recommends that interest rate management and reactions to the stock market return should be factored into the management and transmission of monetary policy in Nigeria. The regulatory authorities, the monetary policy committee and operators of the capital market should strengthening the design and implementation of the objective of the interest rate variation with the operational objective of the capital market investment. Efforts should be made by government to ensure appropriate policy mix to ensure harmony and enhancing coordination in economic and financial policies in view of the observed nexus between arbitrage pricing model and sectorial stock market return in Nigeria.
