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On the volatility of daily stock returns of Total Nigeria Plc: evidence from GARCH models, value-at-risk and backtesting

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Listed:
  • Ngozi G. Emenogu

    (Federal Polytechnic)

  • Monday Osagie Adenomon

    (Nasarawa State Univ ersity)

  • Nwaze Obini Nweze

    (Nasarawa State Univ ersity)

Abstract

This study investigates the volatility in daily stock returns for Total Nigeria Plc using nine variants of GARCH models: sGARCH, girGARCH, eGARCH, iGARCH, aGARCH, TGARCH, NGARCH, NAGARCH, and AVGARCH along with value at risk estimation and backtesting. We use daily data for Total Nigeria Plc returns for the period January 2, 2001 to May 8, 2017, and conclude that eGARCH and sGARCH perform better for normal innovations while NGARCH performs better for student t innovations. This investigation of the volatility, VaR, and backtesting of the daily stock price of Total Nigeria Plc is important as most previous studies covering the Nigerian stock market have not paid much attention to the application of backtesting as a primary approach. We found from the results of the estimations that the persistence of the GARCH models are stable except for few cases for which iGARCH and eGARCH were unstable. Additionally, for student t innovation, the sGARCH and girGARCH models failed to converge; the mean reverting number of days for returns differed from model to model. From the analysis of VaR and its backtesting, this study recommends shareholders and investors continue their business with Total Nigeria Plc because possible losses may be overcome in the future by improvements in stock prices. Furthermore, risk was reflected by significant up and down movement in the stock price at a 99% confidence level, suggesting that high risk brings a high return.

Suggested Citation

  • Ngozi G. Emenogu & Monday Osagie Adenomon & Nwaze Obini Nweze, 2020. "On the volatility of daily stock returns of Total Nigeria Plc: evidence from GARCH models, value-at-risk and backtesting," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 6(1), pages 1-25, December.
    • Handle: RePEc:spr:fininn:v:6:y:2020:i:1:d:10.1186_s40854-020-00178-1
    DOI: 10.1186/s40854-020-00178-1
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