Modelling Volatility Persistence and Asymmetry with Structural Break: Evidence from the Nigerian Stock Market

Abstract

Abstract: This study contributes to existing literature on the Nigerian stock market by modelling the persistence and asymmetry of stock market volatility taking into account structural break. It utilises returns generated from data on monthly all-share index from January 1985 to December 2014. After identifying structural break in the return series, the study splits the sample period into pre-break period (January 1985 – November 2008) and post-break period (January 2009 – December 2014). Using the symmetric GARCH model, the study shows that the sum of ARCH and GARCH coefficients is higher in the pre-break period compared to the post-break period, thus indicating that persistence of shock to volatility is higher before structural break in the market. The asymmetric GARCH model provides no evidence of asymmetry as well as leverage effect with or without accounting for structural break in the Nigerian stock market. This study concludes that the Nigerian stock market is characterised by inefficiency, high degree of uncertainty and non-asymmetric volatility.Keywords: Persistence, asymmetry, stock market volatility, structural break