Modelling the Volatilities of Nigeria Exchange Rate, Inflation Rate, and the Stock Exchange using Time Series Models

Abstract

This research modelled the volatilities of Exchange rate, Inflation rate and Nigeria stock exchange. The research fit time series models; Autoregressive Conditional Heteroskedastic (ARCH) model, Generalized Autoregressive Conditional Heteroskedasticity (GARCH) model, and Exponential GARCH (EGARCH) model, using the monthly data on Exchange rate, Inflation rate, and Stock exchange from January 1990 to December 2017. The return series of the variables shows periods of low and high volatilities, which signify volatility clustering. The parameters of the three variables were estimated and compared using each of univariate GARCH (1, 1) model under consideration i.e. GARCH (1, 1), EGARCH (1, 1) and GJR-GARCH (1, 1) models. Furthermore, the three variables were compared using the GARCH (1, 1) model and it was discovered that Nigeria stock exchange have the best performance, followed by inflation rate and exchange rate in that order.  based on the assumption of 5% level of significant for GARCH (1, 1) model, most of the parameters of the Stock exchange are significant with a p-value less than 0.05, for Exchange rate only the constant (Cst1) and a_1 parameters is significant, for Inflation both Alpha1 and Beta1 are significant. EGARCH (1, 1) indicate that Nigeria stock exchange just as GARCH (1, 1) have the best performance, followed by inflation rate and exchange rate in that order. Only Exchange Rate has leverage volatility effect out of the three variables based on the result from EGARCH model.

Citation: Nasiru M.O., Ajayi A.A., Mustapha A.K  (2021) Modelling the Volatilities of Nigeria Exchange Rate, Inflation Rate, and the Stock Exchange using Time Series Models, International Journal of Mathematics and Statistics StudiesVol.9, No.4, pp.1-13

Keywords: EGARCH, Exchange Rate, GARCH, Inflation Rate, arch, stock exchange

Article Review Status: Published

Pages: 1-13 (Download PDF)

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