Stock volatility in the eyes of turbulence: evidence from Nigerian banks

Abstract

In this paper, effects of the crises and the financial reforms introduced in the Nigerian financial market by the Central Bank of Nigeria (CBN) on the volatility of stock prices of some selected banks in the Nigerian Stock Market (NSM) using ARCH/GARCH family models, are investigated. Daily closing stock prices of four prominent banks in Nigeria from 2004-2014 covering periods of the indicated scenarios are considered; and based on the Nigerian experience four (sub)periods are identified. Hence for us to satisfy some vital underlining assumptions of volatility models, stationarity and heteroscedasticity are examined using appropriate test statistics. It was found that in times of crises, different GARCH candidate models were fitted for the four banks compared to before and after the crises and reforms, the situation that could be attributed to the observed varying level of persistence in the volatility of the returns for these banks occasioned by the indicated scenarios.