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Disentangled oil shocks and stock market volatility in Nigeria and South Africa: A GARCH-MIDAS approach

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  • Tumala, Mohammed M.
  • Salisu, Afees A.
  • Gambo, Ali I.

Abstract

In this study, we investigate the effects of disentangled oil shocks on the volatility of the stock markets of Nigeria and South Africa using the Mixed Data Sampling variant of the Generalized Autoregressive Conditional Heteroscedasticity (GARCH-MIDAS) model. The disentangled oil shocks involve oil supply shock, economic activity shock, oil consumption demand shock, and oil inventory demand shock covering January 2010 and July 2022. Overall, we find that the stock market volatilities of Nigeria and South Africa respond similarly to oil supply shock and oil consumption demand shock but differently to economic activity shock and oil inventory demand shock. The unusual increase in the volatility of Nigeria’s stock market has been attributed to the loss of investors’ confidence which takes a too long time to be restored. Our results are robust to alternative forecast sampling techniques, particularly fixed and rolling windows.

Suggested Citation

  • Tumala, Mohammed M. & Salisu, Afees A. & Gambo, Ali I., 2023. "Disentangled oil shocks and stock market volatility in Nigeria and South Africa: A GARCH-MIDAS approach," Economic Analysis and Policy, Elsevier, vol. 78(C), pages 707-717.
    • Handle: RePEc:eee:ecanpo:v:78:y:2023:i:c:p:707-717
    DOI: 10.1016/j.eap.2023.04.009
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    More about this item

    Keywords

    Oil shocks; Stock market volatility; GARCH-MIDAS approach; Nigeria; South Africa;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • Q18 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Policy; Food Policy; Animal Welfare Policy
    • Q31 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Demand and Supply; Prices
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes

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