Abstract:

This paper provides the empirical evidence on the validity and comparison of single factor and multi factor model that many researchers had studied. Asset pricing and the relation of risk-return relationship in the Nigeria capital market has not been in conclusive stance. Using the regression analysis to determine the explanatory strength and determine the pricing ability of return and risk by employing average monthly returns of stocks listed in the exchange from January 2012 to June 2017.   We document that the value, size and momentum risks command significant risk premium, while the covariance risk does not have significant risk premium and the relevant risks are the non-market risks, and they perform better than the market beta in the overall market conditions. The four factor model individually explains the information that is not been captured by the CAPM. While the factor of the CAPM of single factor model does not significantly explain the information that is not capture by the Cahart 4 factor model. So also, the joint influence suggests that the four factor model has a better or stronger explanatory power than the CAPM. The paper recommends that investors discounting the expected return of their investments or computing the required rate of return of investments should adopt the four factor CAPM