GENERALIZED AUTOREGRESSIVE CONDITIONAL HETEROSCEDASTICITY (GARCH) MODELS AND OPTIMAL FOR NIGERIAN STOCK EXCHANGE

This paper focused on comparative performance of GARCH models, ascertaining the best model fit, estimating the parameters and making prediction from optimal model. The study used UBA daily stock exchange prices sourced from the official websites of www.investing.com,on the daily basis of the Nigeria stock exchange rate over a period of ten years from 06/06/2012 – 04/06/2021. Five GARCH models (SGARCH, GJRGARCH or TGARCH, EGARCH, APGARCH and IGARCH) were fitted to the secondary data set of the Nigerian Stock exchange market for the period of June 2012- June 2021 and the results of the findings were obtained. The AIC results were SGARCH (1,1) (-6.1784), GJRGARCH (1,1) (-6.1778), EGARCH (1,1) (-6.1714), APGARCH (1,1) (-6.1245) and IGARCH (1,1) with the value of AIC -6.1793. The EGARCH (1, 1) was found to be the optimal model with AIC value of -6.1714. The further findings indicated volatility clustering and leverage effect. The result of the analysis equally showed parameter estimates of the EGARCH (1,1) model and all the parameters were significant including mean and alpha. Prediction using the optimal model was made with an initial out of sample of 200 and n ahead of 200 with predicted values within the 95% confidence interval resulting there is no sign of volatility and clustering. Based on the findings of the study, other time series packages should be compared with GARCH models, data should be making available for easy access and investors should be encouraged to invest in United Bank for Africa (UBA, Nigeria).