Company Fundamentals and Returns in the Nigerian Stock Market

  • AE Uwubanmwen
  • J Obayagbona


The paper examines the impact of company fundamentals on equity returns in the Nigerian stock market, using the panel regression technique which also incorporates two effects (the fixed effects and the random effects). The distinction between fixed and random effects is whether the unobserved individual effect embodies elements that are correlated with the regressors in the model, not whether these effects are stochastic or not. The result shows that all the coefficients have positive signs in line with a priori determination. However, only the coefficient of BMV (book to market value) passes the significance test at the 1 percent level. The coefficient of LEV manages to pass the test at the 10 percent level, while all the other coefficients firm size (SIZE), price earnings ratio (PER) failed the significance test. This indicates that the book to market value of the firm is the main company fundamental that can predict stock returns of the firms in the Nigerian stock market.The result also reports the fixed effects of each firm on the constant term in the model. It shows that only Julius Berger stocks returns tend to fall below the mean value over time. All the other returns failed to rise, CAP having the biggest tendency; while that of the random effects shows that none of the coefficients passed the significance tests at the 5 percent level. Thus, the hypothesis of a random effect in the specified relationship cannot be accepted and the random effect model does not portray the expected relationships.

Keywords: Fundamentals, equity, stock, firms.


Journal Identifiers

eISSN: 1596-8308