THE RELATIONSHIP BETWEEN STOCK MARKET RETURN AND CONDITIONAL VARIANCE (VOLATILITY) IN THE NIGERIAN STOCK MARKET FROM 1999-2016

Chukwu Agwu Ejem
Abia State Polytechnic, Abia,State,Nigeria

Godfrey Udochukwu Ogbonna
Board of Internal Revenue, Umuahia, Abia State,Nigeria,

Chinedu B. Ezirim
University of Port Harcourt, Nigeria

ABSTRACT
This study examined the nature of the relationship that exists between stock market return
and conditional variance (volatility) in the Nigerian stock market, by applying Exponential
Generalized Autoregressive Conditional Heteroscedasticity (EGARCH-in-Mean) model to
Nigerian stock exchange (NSE) daily stock return series from January 4, 1999 to December 31,
2016. This is borne out of the mixed feelings of Nigerian investors who are risk-averse. The
estimates from EGARCH model revealed that there is a positive and significant relationship
between stock market returns and conditional volatility. The estimates also supported the
existence of asymmetric effect. Although the Nigerian stock market is highly volatile, that volatility
is not persistent. Therefore, the authors recommended, among others, that the Nigerian stock
market should ensure timely disclosure and appropriate dissemination of company related
information to the public or investors in order to avert escalation of bad news, which increases
volatility.
Keywords: Stock market return, conditional volatility, EGARCH model, Asymmetric effects, heteroscedasticity,
Nigerian stock market