Modelling the Risk – Return Volatility Nexus in the Nigerian Stock Exchange
Abstract
This study estimated and analyzed the risk – return volatility nexus in the Nigerian Stock Exchange for the period January 1985 to April 2019, by applying the non-linear symmetric and asymmetric Exponential Generalized Auto Regressive Conditional Heteroscedasticity (EGARCH) model. The study results indicate that the Nigerian stock exchange all share index log relative return has a leptokurtic distribution and is negatively skewed. The ADF Unit Root Test show that the Nigerian stock exchange all share index log relative return is integrated of order zero i.e. I(0). The results also indicate that the Nigerian stock exchange index returns exhibits volatility clustering meaning that the market experience mean reversion. Another stylized fact exhibited by the Nigerian stock exchange index returns is volatility persistence (long memory) as revealed by the study. These results indicate that investors are well able to predict the future parts of return in the Nigerian stock exchange and therefore should embrace models that are capable of forecasting the risk and return relationships such as the EGARCH model in making investment decisions to avoid bearing avoidable risks
Keywords
Risk–Return VolatilityEGARCHHeteroskedasticityLeptokurtosisAsymmetric
effectLong-MemoryVolatility Clustering
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