Modeling Volatility in Financial Time Series: Evidence From Nigerian Inflation Rates

Abstract

This research work tends to describe volatility in the consumer prices of some selected commodities in Nigerian market. This is achieved by examining the presence or otherwise of the volatility in their prices using ARCH and GARCH models with the monthly Consumer Price Index (CPI) of five selected commodities over a period of time (1997 – 2007) collected from National Bureau of Statistics, Headquarters, Abuja. The data obtained were analyzed using MS-Excel and E- view software packages. Akaike information Criteria (AIC) and Bayesian Information Criteria were used to test the adequacy of the models. Langragean Multiplier test was also used to test for the presence of ARCH effects and the data for the prices showed varying degree of ARCH effects.

Keywords: Volatility, Inflation Rates, ARCH, GARCH, Volatility Clustering