The Application of the Capital Asset Pricing Model (CAPM) In the Nigerian Chemicals and Paints Industrial Sector (Published)
This paper calculated the (historical) betas of listed stocks in the chemicals and paints sector of the Nigerian Stock Exchange over a 13-year period (2000-2012). The beta estimation of listed stocks showed that the beta content of the entire sector ranges between 1.04% and -0.13 or between 6.78 and -2.31% providing an average beta content of 0.37 or 1.50% of the total risk for the sector. The results indicate that the unsystematic risk content in chemicals/paints sector stocks constitutes the bulk of the sector’s risk profile and that most of the stocks’ betas had defensive attributes over the study period. The investment implication is that including an appropriate mix of chemical and paints stocks in the investors’ portfolios would, ceteris paribus, help investors to achieve a combination of investments that are not highly correlated with larger economic cycle as well as higher-risk equity securities that can potentially yield higher returns than the market.
Keywords: Alpha Risk, Beta Risk, Capital Asset Pricing Model, Equity, Market Risk, Nigerian Stock Exchange, Systematic Risk, Total Risk, Unsystematic Risk, Volatility Level, beta