Unraveling the Dynamics of Nigerian Stock Market: A Deep Dive into Volatility and Daily Stock Returns

Abstract

This study investigates the volatility dynamics of daily stock market returns in Nigeria through advanced econometric models, specifically the Exponential Generalized Autoregressive Conditional Heteroskedasticity (EGARCH) model. Daily closing price data from the Nigerian Exchange Group (NGX), covering the period from June 30, 2015, to October 25, 2024, was analyzed to assess volatility persistence, clustering, and asymmetric responses to economic shocks. Findings revealed 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.