Modeling Asymmetric Volatility in the Nigerian Stock Exchange

Abstract

This paper examines the response of volatility to negative and positive news using daily closing prices of the Nigerian Stock Exchange (NSE). By applying EGARCH (1,1) and GJR-GARCH (1,1) models to NSE daily stock return series from January 2^nd 1996 to December 30^th 2011, we find strong evidence supporting asymmetric effects in the NSE stock returns but with absence of leverage effect. Specifically, the estimates from EGARCH model show positive and significant asymmetric volatility coefficient. In the same way, results of the GJR-GARCH model show negative and significant asymmetric volatility coefficient, also supporting the existence of positive asymmetric volatility. Overall results from this study provide support for positive news producing higher volatility in the immediate future than negative news of the same magnitude in Nigeria.

Keywords: Returns volatility, Asymmetric effects, GARCH models, Nigerian Stock Exchange.