Science Journal of Applied Mathematics and Statistics

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Volatility Modelling of Stock Returns of Selected Nigerian Oil and Gas Companies

Received: 7 July 2023    Accepted: 31 July 2023    Published: 15 August 2023
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Abstract

Modelling volatility asset returns is a well-researched concept in financial statistics, given its significance to investment analysts, economists, risk-averse investors, policymakers and other relevant stakeholders to underpin the market and the general economic performance and resilience to shocks, domestically and internationally. Thus, this study fits an appropriate ARCH/GARCH family model to daily stock returns volatility of each of the selected five most traded assets of the oil and gas marketing companies on the Nigerian stock exchange (NSE), using daily closing prices from January 1, 2005, to December 31, 2020. First-order symmetric and asymmetric volatility models with the Normal, Student’s t, Skewed Student’s t and generalized error distributions (GED) were fitted to select the best model with the most appropriate error distribution using appropriate model selection criteri EGARCH (1,1) with GEDs was found to be the best-fitted models based on the Akaike Information Criterion (AIC). The results indicated the presence of a leverage effect in the series and how the volatility reacts to good news as against bad news implying that positive shock has a higher impact on the returns of the respective companies. Based on the findings it is recommended that, for enhanced precision, GARCH family models with appropriate error distribution be applied in underpinning assets volatility, which in turn would help to better understand the nature of inherent shocks characterizing asset volatility of the respective companies. With such knowledge, appropriate investment decisions are made to guide risk-averse investors in their investments.

DOI 10.11648/j.sjams.20231102.11
Published in Science Journal of Applied Mathematics and Statistics (Volume 11, Issue 2, April 2023)
Page(s) 26-36
Creative Commons

This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.

Copyright

Copyright © The Author(s), 2024. Published by Science Publishing Group

Keywords

Volatility, Oil/Gas Industry, ARCH/GARCH Models, Leverage Effect, Nigerian Stock Exchange

References
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Cite This Article
  • APA Style

    Maruf Ariyo Raheem, Regina Domingo Mbeke, Elisha John Inyang. (2023). Volatility Modelling of Stock Returns of Selected Nigerian Oil and Gas Companies. Science Journal of Applied Mathematics and Statistics, 11(2), 26-36. https://doi.org/10.11648/j.sjams.20231102.11

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    ACS Style

    Maruf Ariyo Raheem; Regina Domingo Mbeke; Elisha John Inyang. Volatility Modelling of Stock Returns of Selected Nigerian Oil and Gas Companies. Sci. J. Appl. Math. Stat. 2023, 11(2), 26-36. doi: 10.11648/j.sjams.20231102.11

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    AMA Style

    Maruf Ariyo Raheem, Regina Domingo Mbeke, Elisha John Inyang. Volatility Modelling of Stock Returns of Selected Nigerian Oil and Gas Companies. Sci J Appl Math Stat. 2023;11(2):26-36. doi: 10.11648/j.sjams.20231102.11

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  • @article{10.11648/j.sjams.20231102.11,
      author = {Maruf Ariyo Raheem and Regina Domingo Mbeke and Elisha John Inyang},
      title = {Volatility Modelling of Stock Returns of Selected Nigerian Oil and Gas Companies},
      journal = {Science Journal of Applied Mathematics and Statistics},
      volume = {11},
      number = {2},
      pages = {26-36},
      doi = {10.11648/j.sjams.20231102.11},
      url = {https://doi.org/10.11648/j.sjams.20231102.11},
      eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.sjams.20231102.11},
      abstract = {Modelling volatility asset returns is a well-researched concept in financial statistics, given its significance to investment analysts, economists, risk-averse investors, policymakers and other relevant stakeholders to underpin the market and the general economic performance and resilience to shocks, domestically and internationally. Thus, this study fits an appropriate ARCH/GARCH family model to daily stock returns volatility of each of the selected five most traded assets of the oil and gas marketing companies on the Nigerian stock exchange (NSE), using daily closing prices from January 1, 2005, to December 31, 2020. First-order symmetric and asymmetric volatility models with the Normal, Student’s t, Skewed Student’s t and generalized error distributions (GED) were fitted to select the best model with the most appropriate error distribution using appropriate model selection criteri EGARCH (1,1) with GEDs was found to be the best-fitted models based on the Akaike Information Criterion (AIC). The results indicated the presence of a leverage effect in the series and how the volatility reacts to good news as against bad news implying that positive shock has a higher impact on the returns of the respective companies. Based on the findings it is recommended that, for enhanced precision, GARCH family models with appropriate error distribution be applied in underpinning assets volatility, which in turn would help to better understand the nature of inherent shocks characterizing asset volatility of the respective companies. With such knowledge, appropriate investment decisions are made to guide risk-averse investors in their investments.},
     year = {2023}
    }
    

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  • TY  - JOUR
    T1  - Volatility Modelling of Stock Returns of Selected Nigerian Oil and Gas Companies
    AU  - Maruf Ariyo Raheem
    AU  - Regina Domingo Mbeke
    AU  - Elisha John Inyang
    Y1  - 2023/08/15
    PY  - 2023
    N1  - https://doi.org/10.11648/j.sjams.20231102.11
    DO  - 10.11648/j.sjams.20231102.11
    T2  - Science Journal of Applied Mathematics and Statistics
    JF  - Science Journal of Applied Mathematics and Statistics
    JO  - Science Journal of Applied Mathematics and Statistics
    SP  - 26
    EP  - 36
    PB  - Science Publishing Group
    SN  - 2376-9513
    UR  - https://doi.org/10.11648/j.sjams.20231102.11
    AB  - Modelling volatility asset returns is a well-researched concept in financial statistics, given its significance to investment analysts, economists, risk-averse investors, policymakers and other relevant stakeholders to underpin the market and the general economic performance and resilience to shocks, domestically and internationally. Thus, this study fits an appropriate ARCH/GARCH family model to daily stock returns volatility of each of the selected five most traded assets of the oil and gas marketing companies on the Nigerian stock exchange (NSE), using daily closing prices from January 1, 2005, to December 31, 2020. First-order symmetric and asymmetric volatility models with the Normal, Student’s t, Skewed Student’s t and generalized error distributions (GED) were fitted to select the best model with the most appropriate error distribution using appropriate model selection criteri EGARCH (1,1) with GEDs was found to be the best-fitted models based on the Akaike Information Criterion (AIC). The results indicated the presence of a leverage effect in the series and how the volatility reacts to good news as against bad news implying that positive shock has a higher impact on the returns of the respective companies. Based on the findings it is recommended that, for enhanced precision, GARCH family models with appropriate error distribution be applied in underpinning assets volatility, which in turn would help to better understand the nature of inherent shocks characterizing asset volatility of the respective companies. With such knowledge, appropriate investment decisions are made to guide risk-averse investors in their investments.
    VL  - 11
    IS  - 2
    ER  - 

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Author Information
  • Department of Statistics, University of Uyo, Uyo, Nigeria

  • Department of Statistics, University of Uyo, Uyo, Nigeria

  • Department of Statistics, University of Uyo, Uyo, Nigeria

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