Macroeconomic Augmented Capital Asset Pricing Model in Nigeria Capital Market
Keywords:
Asset pricing factors, Inflation rate, Exchange rate, Interest rate, Stock returnsAbstract
The study examines how augmentation of capital asset pricing model with macroeconomic variables: interest rate, inflation rate and exchange rate could explain stock return variation for Nigeria market spanning period January 2003 to December 2023 using ordinary least square regression method. The dependent variable is proxy with six sort size-value portfolios while the explanatory variables are market premium, interest rate premium, inflation rate premium and exchange rate premium. Regression results shows inflation rate premium and exchange rate premium are statistically significant for macroeconomic augmented CAPM while market factor is statistically significant for capital asset pricing model. Also, GRS test result reveals macroeconomic augmented capital asset pricing model is the superior model for explaining stock return variation in Nigeria market. Hence, it can be recommended that Government should roll out policies that will enhance management of inflation rate and exchange rate as they are very critical to growth of any economy and development of capital market.
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