Evaluating the Relationship Between Conditional Variance and Daily Stock Market Returns in Nigeria

Abstract

This study examined the relationship between volatility and daily stock market returns in Nigeria using Exponential Generalized Autoregressive Conditional Heteroskedasticity, EGARCH model. Daily closing price data from the Nigerian Exchange Group was analyzed to assess volatility persistence, clustering, and asymmetric responses to economic shocks. Findings showed that high volatility persistence and significant asymmetry, with negative shocks exerting a stronger impact on volatility than positive shocks. The EGARCH model is a sufficient model in capturing these dynamics, underscoring the Nigerian stock market's heightened sensitivity to adverse economic and political events. These results have practical implications for investors and policymakers, underscoring the importance of robust risk management strategies and stability- focused policies. This study contributed to the literature on emerging market volatility and lays a foundation for further research on volatility patterns in other African financial markets.

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