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Modelling Stock Returns Volatility In Nigeria Using GARCH Models

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  • Emenike, Kalu O.

Abstract

There is quite an extensive literature documenting the behaviour of stock returns volatility in both developed and emerging stock markets, but such studies are scanty for the Nigerian Stock Exchange (NSE). Modelling volatility is an important element in pricing equity, risk management and portfolio management. For these reasons, this paper investigates the behaviour of stock return volatility of the Nigerian Stock Exchange returns using GARCH (1,1) and the GJR-GARCH(1,1) models assuming the Generalized Error Distribution (GED). Monthly All Share Indices of the NSE from January 1999, to December 2008, provided the empirical sample for investigating volatility persistence and asymmetric properties of the series. The results of GARCH (1,1) model indicate evidence of volatility clustering in the NSE return series. Also, the results of the GJR-GARCH (1,1) model show the existence of leverage effects in the series. Finally, the Generalized Error Distribution (GED) shape test reveals leptokurtic returns distribution. Overall results from this study provide evidence to show volatility persistence, fat-tail distribution, and leverage effects for the Nigeria stock returns data.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 22723.

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Date of creation: 15 Jan 2010
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Handle: RePEc:pra:mprapa:22723

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Keywords: Modeling; Volatility; Stock Returns; GARCH Models; Nigerian Stock Exchange;

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  1. Benoit Mandelbrot, 1963. "The Variation of Certain Speculative Prices," The Journal of Business, University of Chicago Press, vol. 36, pages 394.
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  10. Panayiotis Theodossiou, 1998. "Financial Data and the Skewed Generalized T Distribution," Management Science, INFORMS, vol. 44(12-Part-1), pages 1650-1661, December.
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  12. John Y. Campbell & Ludger Hentschel, 1991. "No News is Good News: An Asymmetric Model of Changing Volatility in Stock Returns," NBER Working Papers 3742, National Bureau of Economic Research, Inc.
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Cited by:
  1. Yaya, OlaOluwa S. & Gil-Alana, Luis A., 2014. "The persistence and asymmetric volatility in the Nigerian stock bull and bear markets," Economic Modelling, Elsevier, vol. 38(C), pages 463-469.

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