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Inflation and Stock Market Returns Volatility: Evidence from the Nigerian Stock Exchange 1995Q1-2016Q4: An E-GARCH Approach

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  • Iorember, Paul
  • Sokpo, Joseph
  • Usar, Terzungwe

Abstract

The paper investigated the effect of inflation on stock market returns on the Nigerian stock exchange market, employing a volatility modeling approach. Using monthly data on stock market returns and consumer price index inflation rate, the paper employed GARCH and E-GARCH volatility modeling techniques for analysis. The study found that CPI inflation is not an important variable in explaining stock market return volatility in Nigeria. The E-GARCH model did not find existence of asymmetry in the stock return series; that is good news and bad news have identical impact on stock returns in Nigeria. The GARCH model show high persistence in the stock returns series, though a shock to stock returns has only a temporary impact.

Suggested Citation

  • Iorember, Paul & Sokpo, Joseph & Usar, Terzungwe, 2017. "Inflation and Stock Market Returns Volatility: Evidence from the Nigerian Stock Exchange 1995Q1-2016Q4: An E-GARCH Approach," MPRA Paper 85656, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:85656
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    References listed on IDEAS

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    2. Mtero, Charles Tapedza & Runganga, Raynold, 2021. "Inflation and Stock Market Returns in Zimbabwe: Comparison Among the GARCH, EGARCH and TGARCH Models," MPRA Paper 112408, University Library of Munich, Germany, revised 15 Mar 2022.
    3. Kayani, Umar & Hasnaoui, Amir & Khan, Maaz & Zahoor, Nadia & Nawaz, Farrukh, 2024. "Analyzing fossil fuel commodities' return spillovers during the Russia and Ukraine crisis in the energy market," Energy Economics, Elsevier, vol. 135(C).
    4. Wellington Garikai Bonga & Ledwin Chimwai & Puruweti Siyakiya & Ireen Choga, 2022. "Stock Market Volatility in Zimbabwe Stock Exchange during Pandemic Period," Eurasian Journal of Economics and Finance, Eurasian Publications, vol. 10(2), pages 68-82.
    5. Terhemba Iorember, Paul & Usar, Terzungwe & Hannafi Ibrahim, Kabiru, 2018. "Analyzing inflation in Nigeria: a fractionally integrated ARFIMA-GARCH modelling Approach," African Journal of Economic Review, African Journal of Economic Review, vol. 6(1), January.
    6. Aliyu, Shehu Usman Rano, 2020. "What have we learnt from modelling stock returns in Nigeria: Higgledy-piggledy?," MPRA Paper 110382, University Library of Munich, Germany, revised 06 Jun 2021.
    7. Bonga, Wellington Garikai, 2019. "Stock Market Volatility Analysis using GARCH Family Models: Evidence from Zimbabwe Stock Exchange," MPRA Paper 94201, University Library of Munich, Germany.

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    More about this item

    Keywords

    Inflation; stock market returns; Exponential Generalized Autoregressive Conditional Heteroskedasticity (E-GARCH);
    All these keywords.

    JEL classification:

    • P34 - Political Economy and Comparative Economic Systems - - Socialist Institutions and Their Transitions - - - Finance

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