Volatility Estimation and Stock Price Prediction in the Nigerian Stock Market

Abstract

This study aimed at understanding the Nigerian Stock Market with regards to volatility and prediction, to this effect the month end stock prices of four major companies from the period January 2005 to December, 2009 was used as proxy. The study made use of the Autoregressive Conditional heteroskedasticity (ARCH) to estimate and find out the presence of volatility. The study found the presence of volatility in all the four stock prices used, while stock price volatility was then regressed against stock prices to determine their predictability. The results however, revealed that out of the four companies, only two companies' stock prices were predicted by volatility in their stock prices, while past stock prices predicted current stock prices implying that the market does not follow a random walk. As a result of these, it is recommended that activities of corporate insiders should be properly checked, to reduce the predictability of stock prices, information should be known and made public to all investors. Also policy makers are advised to review their economic policies and should be careful in their use of the Nigerian bourse as a barometer to reflect performance in the general economy as our findings suggests that this could be misleading.

Day-of-the-week effect in Nigerian stock exchange: adaptive market hypothesis approach

“…The former is given as a function of exogenous variables and stochastic error term, while the latter depends on three components, namely the constant term (w), the squared residual in the preceding period ( 2 1 t ε − ) and the forecast variance in the preceding period ( 2 1 t δ − ). The (1,1) in GARCH (1,1) implies that both the autoregressive GARCH term and moving average ARCH term are taken at order one (1). According to Brook (2014), a GARCH (1,1) model can handle stock return characteris-tics and is the commonest in the academic finance literature.…”

Risk Implications of Increased Off-Balance Sheet Disclosure: The Case of FIN 46 and SOX

“…We therefore also examine the overall impact of this regulation on firm risk and further evaluate whether disclosures required under this standard had an incremental effect beyond that of FIN 46. The impact of these regulatory changes on firm equity risk are important because, as Gabriel and Ugochukwu (2012) note, "The existence of excessive volatility in the stock market undermines the usefulness of stock prices as a signal about the true intrinsic value of a firm (3)".…”

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“…This study also proposed that signaling effect is also relevant in determining the share price volatility. Gabriel et al (2012) It is important to know the firm specific factors that impact the profitability of the firm. Firm's profitability is linked to the stock price determination.…”