Modeling Stock Market Returns under Self-exciting Threshold Autoregressive Model: Evidence from West Africa

Emmanuel Numapau Gyamfi and Kwabena A. Kyei
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Emmanuel Numapau Gyamfi: Department of Statistics, University of Venda, South Africa,
Kwabena A. Kyei: Department of Statistics, University of Venda, South Africa.

International Journal of Economics and Financial Issues, 2016, vol. 6, issue 3, 1194-1199

Abstract: The study seeks to investigate whether non-linear patterns are present in the returns of two indices on the stock markets in Ghana and Nigeria between the period of 2011 and 2015. The results of applying four linearity tests on the returns concluded that the null of linearity is rejected on all four tests for the Ghanaian index but mixed for the Nigerian index. We modelled the indices under the non-linear self-exciting threshold autoregressive (SETAR) model. We compared the modelling performance of the non-linear SETAR model with that of the standard AR (1) and AR (2) by analyzing Akaike information criterion values of the respective models. Our results show that the SETAR model fits the data well. Hence, modelling stock market returns from Ghana and Nigeria using linear models might lead to spurious conclusions.

Keywords: Threshold Models; Linearity Tests; Self-exciting Threshold Autoregressive Model (search for similar items in EconPapers)
JEL-codes: C12 C13 C24 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (3)

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