Nigerian Statistical Association Logo - A Galaxy of Professional Statisticians
Close
The third edition of the Nigerian Statistical Association Competition for Undergraduate students will commence on the 24th to 30th of July 2022

Comparing Predictive Accuracy of Nonlinear Asymmetric Volatility Models: Evidence from the Nigerian Bank Share Prices.

AUTHOR(S):

OlaOluwa S. Yaya; Olanrewaju .I.Shittu and Muhammed. M. Tumala.

JOURNAL: Journal of the Nigerian Statistical Association Vol. 27, 2015
YEAR: 2015

ABSTRACT

This present work is motivated by the articles titled "Answering the skeptics: yes, standard volatility models do provide accurate forecasts" (Andersen and Bollerslev, 1998) and `A forecast comparison of volatility models: Does anything beat a GARCH(1, 1)?" (Hansen and Lunde, 2005). In the latter paper, the authors could not obtain a single winner amongst different volatility models considered, as it was different models that emerged as best in forecasting the volatility of the asset prices, this implying that the best models did not perform better than GARCH(1,1) model on forecasts. We were motivated by this assertion.   We presented four types of nonlinear asymmetric volatility models, and applied these in predicting the volatility of 12 bank share prices in Nigeria.  The pairwise, forecasts comparison was investigated using the Diebold and Mariano (DM) test.  The initial estimation disproved linear GARCH model since it failed to satisfy stationarity and regularity conditions for the model and we proceeded to estimating the asymmetric types.  The Asymmetric Power ARCH (A PARCH) model emerged the best model in terms of fitness in 9 out of the 12 cases, and other models that could not fit the data well were suggested as the best models in making volatility forecasting

BIBLIOGRAPHY

Black, F.(1976). Studies of stock market volatility changes.

 Proceedings of the American Statistical Association, Business and Economic Statistics Section, 177-181.

Bollerslev,T.(1986).Generalized autoregressive conditional heteroscedasticity. Journal of Econometrics 31: 307-27.

Box, G.E.P. and Cox, D.R. (1964). An Analysis of transformations. Journal of Royal Statistical Society B, 26:        211-252.

Chang, H. (2012). An international Comparison of Volatility in Stock Market Returns Prior and Post Global Financial Crisis. International Conference on Economics, Business aria Marketing Management IPEDR vol.29, IACSIT Press, Singapore

Diebold, F.X. and Mariano, R.    (1995). Comparing predictive accuracy. Journal of Business and Eco-

nomic Statistics, 13 (3), 253-263.

Ding, Z., Granger, C. W. J. and Engle, R. F. (1993). A long memory property of stock market returns and a new model. Journal of Empirical Finance, 1: 83-106.

Duruji, M. M. and Osabuohien, E. S. C. (2005). Impact of Recent Regulatory Financial Mechanisms on Informal Financial System in Nigeria. Paper Presented at the National Conference on Informal Financial Sector and Sustainable Development in Nigeria, University of Ado Ekiti, June 8-10, 2005.

Engle R. (1982). Autoregressive conditional heteroscedasticity, with estimates of the variance of United Kingdom inflation. Econometrica 50: 987-1007.

Ferreira., M.A. and Lopez, J.A.         (2005). Evaluating interest rate covariance models within a value-at-risk framework. Journal of Financial Econometrics, 3(1), 126-168.

Glosten, L. W.„Jaganathan, R. and Runkle, D. E. (1993). On the relation between the expected value and the volatility of the nominal excess return on stocks. Journal of Finance 48: 1779-801.

Goffe, W.L., Ferrier, C.D. and Rogers, J.   (1994). Global optimization of statistical functions with simulated annealing. Journal of Econometrics 60, 65-99.

Hansen, P.R. and Lunde, A.     (2005). A forecast comparison of volatility models: Does anything beat a GARCH(1, 1)'? Journal of Applied Econometrics, 20(7): 873-889.

Hesse, H. (2007). Financial intermediation in the Pre-consolidated banking sector in Nigeria. World Bank Policy research Working Paper No 4267.

Kapetanios, G., Labharcl, V. and Price, S.     (2006). Forecasting using predictivelikelihood model averag-

ing. Economics Letters, 91, 373-379.

Khan, M. S. and Senhadji, A. S. (2003). Financial Development and Economic Growth: A Review and New Evidence. Journal of African Economies 12, AERC Supplement 2, 89-110.

Kindleberger, C.F. and Aliber, R. (2005). Manias, Panics, and Crashes: A History of Financial Crises,

5th ed. Wiley.

Laeven. L. and Valencia, F.      (2008). Systemic banking crises: a new database. International Monetary Fund Working Paper 08/224.

Laurent, S. (2007). Estimating and forecasting ARCH models using GkRCH 5. London: Timberlake Consultants Press.

Laurent, S. and Peters, IP.      (2006). LARCH 4.2, Estimating and Forecasting ARCH Models. London: Timberlake Consultants Press.

Moser, G., RAU-111er; F. and Scharler, J. (2007). Forecasting Austrian inflation. Economic Modelling; 24, 470-480.

Nelson, D.B. (1991). Conditional heteroscedasticity in asset returns: A new approach. Econometrica 59: 347-370.

Patton, A.J. (2005). Volatility forecast evaluation and comparison using imperfect volatility proxies. Working paper,London. School of Economics.

Sanusi, L.S. (2010). The Nigerian Banking Industry: what went wrong and the way forward. A Con-

vocation Lecture delivered at the Convocation Square, Bayero University, Kano on Friday 26 February, 2010. Prepared by Research department of Central Bank of Nigeria.

Sanusi, L.S. (2011). The Impact, of the Global Financial Crisis on the Nigerian Capital Market and the Reforms. A paper presentation at the 7th Annual Pearl Awards and Public Lecture, Muson Centre, Onikan, Lagos

Sarma, M., Thoma, S. and Shah, A. (2003). Selection of VaR. models. Journal of Forecasting 22, 337-358. Somalia, E. (1995). Quadratic ARCH Models. Review of Economic Studies, 62: 639-661.

Taylor, N. (2004). Modeling discontinuous periodic conditional volatility: Evidence from life commodity future market. Journal of Futures Markets, 24(9), 805-834.

Xekalaki, E. and Degiannakis, S. (2010). ARCH models for financial applications. John Wiley t.'4 Sons Ltd.

 

READING / DOWNLOAD

Our journal is now available to everyone
Download Journal

Journal of the Nigerian Statistical Association Vol. 27, 2015
2015

SHARE WITH OTHERS

Privacy Policy Terms of Service © 2024 Nigerian Statistical Association - All Rights Reserved Developed by Masterweb Solutions