Response of stock return volatility to money market rates in Nigeria

Stephen Friday Aleke, Collins Okechukwu Irem, Chinonso John Ugwoke and Oketa Chiamaka Eunice

African Journal of Economic and Sustainable Development, 2024, vol. 9, issue 3, 219-238

Abstract: This study examined the effect of inter-bank rates (IBR) and prime lending rates (PLR) on stock market return volatility in Nigeria from January 2002 to December 2016. Descriptive statistics, unit root test (URT), heteroscedasticity, autocorrelation and GARCH (1.1) models were used to examine stock market returns volatility. A diagnostic test was conducted to ascertain the robustness of the estimated GARCH model. It was found that volatility clustering persists in the Nigerian stock market, suggesting that volatility shocks from the previous period will not disappear in the current period for a long time. Consequently, the government should establish a mechanism for monitoring banks' foreign exchange activities to reduce the high cost of borrowing among banks and reduce their liquidity pressures. A reduction in prime lending rates by banks to their customers/investors will encourage them to borrow more.

Keywords: stock returns; volatility; inter-bank rate; IBR; prime lending rate; PLR; Nigeria; all share index; ASI; unit root test; URT. (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:ids:ajesde:v:9:y:2024:i:3:p:219-238

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