Journal of Finance and Economics
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Journal of Finance and Economics. 2019, 7(1), 1-13
DOI: 10.12691/jfe-7-1-1
Open AccessArticle

Volatility Clustering, Leverage Effects and Risk-Return Trade-Off in the Nigerian Stock Market

Wilson E. Herbert1, , Georgina O. Ugwuanyi2 and Ernest I. Nwaocha2

1Department of Banking & Finance, Faculty of Management Sciences, Federal University, Otuoke, Nigeria

2Department of Banking & Finance, College of Management Sciences, Michael Okpara University of Agriculture, Umudike, Nigeria

Pub. Date: December 24, 2018

Cite this paper:
Wilson E. Herbert, Georgina O. Ugwuanyi and Ernest I. Nwaocha. Volatility Clustering, Leverage Effects and Risk-Return Trade-Off in the Nigerian Stock Market. Journal of Finance and Economics. 2019; 7(1):1-13. doi: 10.12691/jfe-7-1-1

Abstract

The configurations of volatility and leverage effect in financial markets play important roles in portfolio management, especially in asset allocation, asset pricing, portfolio selection, portfolio diversification, and risk management. This paper examines the phenomenon of volatility clustering and leverage effect (asymmetry) in stock returns of the Nigerian stock market, using the daily All Shares Index of the Nigerian Stock Exchange during the 7-year period, covering 4th January 2010 through 2nd August 2016. Descriptive statistics, Generalized Autoregressive Conditional Heteroscedasticity (GARCH (1.1) and Glosten, Jagannathan and Runkle Autoregressive Conditional Heteroscedasticity (GJR-GARCH (1.1) were employed in the data estimation. The results affirm the presence of volatility clustering, persistent clustering and significant leverage effects of stock returns in the Nigerian stock market. The findings have policy implications for the regulation and policy expediency of measures that progressively checkmate the patterns of volatility in the Nigerian stock market as well as control negative news (such as insecurity, political instability, and macroeconomic policy inconsistency) which largely increase the level of market uncertainty and investors’ exposure to risks in the market.

Keywords:
asymmetric volatility GARCH effect leverage effect persistent clustering volatility clustering

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