Fama and French 5-Factor Model and Stock Prices: Empirical Evidence from Nigeria

Abstract

This study examined the effect of Fama and French 5-Factor model and stock market return of quoted firms in Nigeria. Data were sourced from financial statement of quoted 52 quoted firms. Stock market return of the quoted firms were modeled as the function of debt-equity ratio, market size measured as volume of sales, earnings yield, trading activities measured by average volume of trading on the stock, book value of equity, dividend yield, earnings volatility and earnings per share. Panel data ordinary least square was used as data analysis methods. The study found that 74 and 50.7 percent changes in stock market return of the quoted firms were explained by variation in the independent variables, the study found that debt equity ratio has negative effect on stock market return while market size, earnings yield and trading activities have positive effect on stock market return and that dividend yield and earnings volatility has negative effect on stock market return while book to equity value and earnings per share have positive effect on stock market return. The study recommend that government and policy makers should design and implement more stringent rule where firms will be compelled and monitored on providing high quality financial reporting, so as to be reporting earnings that reflect their actual performance. Prospective investors should not only focus on huge returns for investing in smaller capitalized or high levered firms; rather, further analysis need to be carried out to tradeoff between risk and returns. The government should fine turned the stock market policy and institute a consistent policy plan to mobilize surplus funds from abroad, which would be injected into the capital market for significant development. The government and the securities exchange commission should create a special fund called “stabilization securities fund” to stabilize the market in the presence of external

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