Testing volatility in Nigeria stock market using GARCH models

The contributions of error distributions have been ignored while modeling stock market volatility in Nigeria and studies have shown that the application of appropriate error distribution in volatility model enhances efficiency of the model. Using Nigeria All Share Index from January 2, 2008 to February 11, 2013, this study estimates first order symmetric and asymmetric volatility models each in Normal, Student's-t and generalized error distributions with the view to selecting the best forecasting volatility model with the most appropriate error distribution. The results suggest the presence of leverage effect meaning that volatility responds more to bad news than it does to equal magnitude of good news. The news impact curves validate this result. The last twenty eight days out-of-sample forecast adjudged Power-GARCH (1, 1, 1) in student's t error distribution as the best predictive model based on Root Mean Square Error and Theil Inequality Coefficient. The study therefore recommends that empirical works should consider alternative error distributions with a view to achieving a robust volatility forecasting model that could guarantee a sound policy decisions

Macroeconometric Assessment of Monetary Approach to Balance of Payments in a Small Open Economy: The Nigeria Experience

Monetary approach to balance of payment establishes a link between foreign reserve assets and money supply. This link is important for managing balance of payment disequilibrium through adjustment of monetary aggregates. This study relies on the Polak (1957, 1997) monetary model with data from 2007:Q1 to 2018:Q4 to examine the link between monetary factors and balance of payment in Nigeria. To circumvent simultaneity, the reduced form coefficients of the structural form of the Polak model are estimated using Two Stage Least Squares (TSLS) technique, while the structural parameters are recovered from the estimated reduced form coefficients. The results are enriching and robust. The Johansen cointegration procedure suggests a long run relationship among the macroeconomic variables in the balance of payment function. The estimated balance of payment model reveals that domestic credit is statistically significant and negatively related to foreign reserve assets, implying that balance of payment is a monetary phenomenon in Nigeria. The velocity of money circulation and the marginal propensity to import are approximately 120 per cent and 14 per cent, respectively. The study therefore recommends that the monetary authority should consider the use of domestic credit for management of balance of payment disequilibrium. It is also pertinent to increase domestic credit to grow the economy since such action will marginally decrease external reserve assets through increase in import, however, the net effect will enhance the overall economy

Are inflation rates in OECD countries actually stationary during 2011-2018? Evidence based on Fourier Nonlinear Unit root tests with Break

We re-investigate the hypothesis of inflation stationarity in 33 Organization of Economic Cooperation and Development (OECD) member countries from 2011 to 2018. We compare two linear fractional-based, two nonlinear Fourier-based and two nonlinear Fourier-Fractional-based unit root tests with five classical unit root tests. Classical unit root tests are biased to the hypothesis of unit root since they do not account for structural breaks and nonlinearities. Incorporating just the Fourier framework into the ADF test does not significantly improve the conventional ADF unit root test. More importantly, we find that accounting for the observed limitations of the classical unit root tests improves the power of test. The rejection ability of the examined unit root tests are greatly enhanced whenever inherent salient features (nonlinearity and fractional integration) are combined with structural breaks. The battery of enhanced unit root tests confirmed the Norwegian inflation rate as the only nonstationary series among the thirty three considered. More than half of the OECD member countries have inflation rates that are somewhat stationary within the investigated period. Robustness check indicated the superiority of test regression with Fourier nonlinearity and break over the classical ADF regression

Are inflation rates in OECD countries actually stationary during 2011-2018? Evidence based on Fourier Nonlinear Unit root tests with Break

We re-investigate the hypothesis of inflation stationarity in 33 Organization of Economic Cooperation and Development (OECD) member countries from 2011 to 2018. We compare two linear fractional-based, two nonlinear Fourier-based and two nonlinear Fourier-Fractional-based unit root tests with five classical unit root tests. Classical unit root tests are biased to the hypothesis of unit root since they do not account for structural breaks and nonlinearities. Incorporating just the Fourier framework into the ADF test does not significantly improve the conventional ADF unit root test. More importantly, we find that accounting for the observed limitations of the classical unit root tests improves the power of test. The rejection ability of the examined unit root tests are greatly enhanced whenever inherent salient features (nonlinearity and fractional integration) are combined with structural breaks. The battery of enhanced unit root tests confirmed the Norwegian inflation rate as the only nonstationary series among the thirty three considered. More than half of the OECD member countries have inflation rates that are somewhat stationary within the investigated period. Robustness check indicated the superiority of test regression with Fourier nonlinearity and break over the classical ADF regression

Modelling banks' interest margins in Nigeria

This study applied panel analysis to determine the factors influencing interest margins in Nigeria using bank-specific, sector-specific and macroeconomic data ranging from 2010:Q1 to 2014:Q2. Based on the Hausman test, a fixed effect model in a generalized form (GLS) was estimated. The result shows that credit risk, growth in loans and advances, staff operating cost, GDP growth, inflation rate and money supply growth are significant determinants of interest margins in Nigeria. Consistent with previous studies, staff cost exerts highest impact on interest margins followed by fixed effects term. Further analysis of the banks' fixed effects reveals that seven banks control about 64%, which raises a policy concern for banks' supervisors. The result also reveals that banks usually transfer their staff operating costs to customers by either imposing exorbitant lending rates or low deposit rates or both. This study recommends the formulation of strategies for reducing growing banks staff cost in the area of levels of compensation, employee turnover, redundancy, automation processes and outsourcing of non-critical tasks should be given due attention to ensure efficiency and competitive margin that could spur growth in Nigeria

Developing banking system stability index for Nigeria

This study constructed a banking system stability index (BSSI) for Nigeria, using a combination of financial soundness indicators and macro-fundamentals. It applied statistical and Conference Board Methodology normalisation processes on Nigeria's banking and macroeconomic data from 2007Q1 to 2012Q2. The resultant index traced fairly well the episodes of crisis in the system over the study period. Hence, the BSSI is capable of acting as an early warning mechanism of signaling fragility. It could, therefore, be used as a complimentary regulatory policy tool to detect potential threat to enable monetary authorities take timely pre-emptive policy measures to avert crisis

Oil-growth nexus in Nigeria : an ADL-MIDAS approach

In this study, we investigate the effect of oil price on the real GDP growth of Nigeria. We contribute to the extant literature on oil price-growth nexus in three ways. First, we employ one of the recently developed Mixed Data Sampling models owing to its ability to accommodate both high and low data frequencies in the same predictive model. Second, we examine the impact of crude oil price on aggregate as well as sectoral output growth, with focus on agriculture, industry and service sectors. Third, we account for the role of macroeconomic/control variables and crude oil price asymmetry. Our results show that accounting for crude oil price asymmetry and macroeconomic determinants increases the predictability of the ADL-MIDAS model for the oil price-growth nexus. On the aggregate, we find that negative oil price changes significantly reduce economic growth while positive oil price changes do not increase economic growth significantly. The sectoral analyses show that the service and industry sectors are more affected by the negative oil price changes than the agriculture sector. Overall, we conclude that the impact of government participation in the economy remains huge and the situation whereby recurrent to capital expenditure ratio of government is about 80/20 percent dampens the growth potential of the Nigerian economy. More investment in capital infrastructure relative to recurrent expenditure is recommended, to reduce the adverse effect of negative crude oil price on economic growth in Nigeria.https://www.elsevier.com/locate/resourpol2025-05-11hj2022Economic

Volatility in the Nigerian Stock Market: Empirical application of Beta-t-GARCH variants

The Generalized Autoregressive Score (GAS), Exponential GAS (EGAS) and Asymmetric Exponential GAS (AEGAS) are new classes of volatility models that simultaneously account for jumps and asymmetry. Using these models, we estimate the dynamic pattern of the Nigeria All Share Index (ASI) from January 3, 2006 to July 22, 2014. Parameter estimates of the models were obtained using the Quasi Maximum Likelihood (QML) approach, and in-sample conditional volatility forecasts from each of the models were evaluated using the minimum loss function approach. Among the classical volatility models, the initial results detected IGARCH-t as the best model for predicting volatility in the ASI. However, in estimating the GAS variants, the Beta-t-EGARCH model proves to predict the volatility in the stock returns better than the IGARCH-t. The estimates could not improve further when the skewed version of the Student-t distribution was considered. We therefore recommend the GAS, EGAS and AEGAS family models in predicting jumps, outliers and asymmetry in financial time series modelling

International monetary policy spillovers to emerging economies in Sub-Saharan Africa : a global VAR analysis

In this paper, we trace the transmission of monetary policy shocks from three prominent sources of global financial and trade shocks (US, Europe, and China) to the two largest emerging economies in Sub-Saharan Africa (SSA) (Nigeria and South Africa). To pursue this study's objective, we employ Global Vector Autoregression (GVAR) model and update the common GVAR database to accommodate selected SSA countries. We report impulse response functions obtained from the model to analyse the responses of inflation, exchange rate, interest rate, and output in the emerging SSA economies to monetary policy shocks emanating from the large open economies. We document some new findings on the relationship between international monetary policy and the behaviour of economic factors in the emerging SSA countries. First, we show that tight monetary policy in the US and EU moderates prices in Nigeria while it is inflationary in South Africa. Second, the impact of the same policy shock is positive and prolonged on the Nigerian Naira and South African Rand. Third, the monetary policy decisions in China and the US have greater influence on the monetary policy in Nigeria and South Africa compared to similar policy decisions in the EU.http://www.elsevier.com/locate/sciafhj2022Economic