Stock Market Volatility and Macroeconomic Variables Volatility in Nigeria: An Exponential GARCH Approach

Abstract

This study employed AR (k)-EGARCH (p, q) technique to examine the volatility in stock market and macroeconomic variables, and used LA-VAR Granger Causality test to analyze the nexus between stock market volatility and macroeconomic variables volatility in Nigeria for the periods 1986 to 2010 using time-series data. The results of the findings revealed that there exists a bi-causal relationship between stock market volatility and real GDP volatility; and there is no causal relationship between stock market volatility and the volatility in interest rate and inflation rate. The study recommended that in order to less the stock market volatile, government should take pro-active role in building a stable market through tapping the growing interest of general people in the market by increasing supply of shares.

Keywords: Stock market, Macroeconomic variables, Volatility, EGARCH, LA-VAR