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News on Stock Market Returns and Conditional Volatility in Nigeria: An EGARCH-in-Mean Approach

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  • Okpara, Godwin Chigozie

Abstract

This paper aims at exploring the relationship between news on the stock market returns and conditional volatility in Nigeria. To determine this relationship, the researcher employed the exponential generalized conditional Heteroscedasticity (EGARCH) in mean model since the model accommodates asymmetric and leverage property. The results of the analysis shows that there is a significant relationship between stock market returns and conditional volatility. Secondly, that the persistence of shocks in the market takes a short time to die out, thirdly, that the stock market volatility is less sensitive to market events while asymmetric effect is positive and significant indicating that good news lowers volatility in Nigeria. In the light of the findings, the researcher suggests that Nigeria stock exchange should ensure that company specific information should be reliable with maximum transparency and speedy dissemination. Also, with the already existing good news lowering volatility and cost of capital in the economy, Government should avoid unnecessary modifications of her policies that are capable of changing the market trading pattern. These measures, the researcher believes, will bridge up information asymmetry and enhance the sensitivity of volatility to market events.

Suggested Citation

  • Okpara, Godwin Chigozie, 2020. "News on Stock Market Returns and Conditional Volatility in Nigeria: An EGARCH-in-Mean Approach," MPRA Paper 102381, University Library of Munich, Germany, revised 12 Aug 2020.
    • Handle: RePEc:pra:mprapa:102381
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    File URL: https://mpra.ub.uni-muenchen.de/102381/1/MPRA_paper_102381.pdf
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    References listed on IDEAS

    as
    1. Engle, Robert F, 1982. "Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation," Econometrica, Econometric Society, vol. 50(4), pages 987-1007, July.
    2. Nelson, Daniel B, 1991. "Conditional Heteroskedasticity in Asset Returns: A New Approach," Econometrica, Econometric Society, vol. 59(2), pages 347-370, March.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Stock returns; EGARCH in mean; information asymmetry; bad news; good news.;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F65 - International Economics - - Economic Impacts of Globalization - - - Finance

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