The Factor-Likelihood Models and the Arbitrage Pricing Theory in the Nigeria Equity Market
Agbam, Azubuike Samuel & Anyamaobi, Chukwuemeka
Department of Banking and Finance
Rivers State University, Npkolu-Oroworukwo, Port Harcourt, Nigeria
Email:azubuikesamuelagbam@yahoo.com, chukwuemeka.anyamaobi@ust.edu.ng
Corresponding Author: Agbam, Azubuike Samuel
ABSTRACT
This study tests the empirical applicability of the Factor Likelihood Arbitrage Pricing Models in explaining stock prices in Nigeria Equity Market. The study adopts the statistical (latent) factors approach. We used the principal component analysis to derive proxies for the latent factors. The Autoregressive Moving Average Maximum Likelihood technique was applied to the latent factors and monthly security returns of 50 sample-stocks listed in the Nigerian Stock Exchange for the period January 2002 to December 2016. The results reveal that out of the seventeen real factors, three command risk premium. We recommend that despite the Pre-specified Arbitrage Pricing Model has gained influence both in advanced and emerging economies, investors should not neglect the Statistical Factors Arbitrage Pricing Model as an efficient discounting technique.
Keyword: Factor likelihood, arbitrage pricing theory, stock pricing, equity market, Nigeria
