MODELING AND FORECASTING OF THE VOLATILITY OF ALL-SHARE INDEX OF NIGERIAN STOCK EXCHANGE MARKET

This paper modeled and forecasted the volatility of the Nigerian Stock Exchange Market while incorporating trade volume from January 2022 to December 2024 using both symmetric and asymmetric volatility models such as ARCH, GARCH, GARCH-M, EGARCH, TGARCH, and PGARCH each in Normal, Students-t and Generalized Error Distributions. The results revealed the following facts: the volatility of the market returns could best be modeled using PGARCH (1, 3) model in normal error distribution, there is evidence of positive leverage effect which reflects that positive shocks induce a larger increase in volatility when compared to the negative shocks of equal magnitude, news about volatility from the previous periods has an explanatory power on current volatility, there is volatility clustering in the market returns, changes in the market returns are explosive, the market risk and returns are inversely related, and the out-sample forecast of the market volatility for the next 2years shows that there will be a low volatility from March to September of the year 2023 and then an increase in volatility up to December 2024. However, for policy and investment decision the paper recommends taking the news on volatility into consideration while forming expectations in the market, investors could invest more within March to September 2023 as the market risk and returns are inversely related, following the forecast estimate that the volatility will be on increase from October 2023 up to December 2024 within which investors are likely to invest less as the market risk and returns are inversely related monetary authority could contract the money supply so as to control the problem of idle cash if the percentage of the investors in the risk-averse category is greater than that of risk-lovers and risk diversifiers categories.