Abstract
This paper examines presence of some stylized facts of short-term stock prices in the banking sector of the Nigerian Stock Market (NSM). Non-normality, lack of autocorrelation in the returns at first lag and significant positive autocorrelation in higher magnitude returns, widely studied in other markets, are investigated using daily closing stock prices of the four major Nigerian banks (Access, First, Guaranty Trust and United Bank for Africa (UBA)), from 2001 to 2013; encompassing periods of different financial scenarios. Jarque-Bera (JB), Doonik-Hansen, Kolmogrov-Smirnov and Ljung-Box (Q) test statistics are applied. Our findings reveal that the four banks stocks behave slightly different, but generally possess the stylized facts found in other markets. Observed is that, while the distributions of the returns for two of these banks (First and UBA) are approximately symmetric and leptokurtic; those of Access and Guaranty Trust banks are significantly non-symmetric and leptokurtic, thus non-normally distributed. Also established is that, while autocorrelation functions of daily returns are either negative or zero, those of both absolute returns and the squared returns are mostly positive. The autocorrelations of absolute returns are found to be predominantly positive and more persistent than those of the squared returns; indicating volatility clustering. Consequently, we conclude that the short-term stock prices of these banks behave like those of other markets. Some implications of the results for financial investment and stock market behaviour in the banking sector of NSM are discussed.
Highlights
Following the 2004 bank restructuring, related financial reforms in Nigeria, and the 2007-09 global financial crisis, the Nigerian financial market experienced near bank failures which were prevented by proactive interventions by the Central Bank of Nigeria (CBN)
The data used in this research were obtained from the Cash craft’s website, a subsidiary of the Nigerian stock Exchange (NSE), are daily closing stock prices for four banks frequently trading with NSE, ranging from 2nd January, 2001 to 31st December, 2013, making up a total of 3201 (Access), 3200 (First), 3203 (Guaranty) and 3202 (UBA) observations
Key Findings Daily stock returns of four major banks, Access, First bank, Guaranty Trust and United Bank for Africa (UBA) in Nigeria have been examined to see if the well documented and established stylized facts commonly are associated with the behaviour of short-interval asset returns, as reported for most major markets in the world, characterise the behaviour of the stocks traded by these banks within the Nigerian Stock Market (NSM)
Summary
Following the 2004 bank restructuring, related financial reforms in Nigeria, and the 2007-09 global financial crisis, the Nigerian financial market experienced near bank failures which were prevented by proactive interventions by the Central Bank of Nigeria (CBN). Despite the ubiquity of volatility studies such as these in Nigeria and elsewhere, there is a dearth of studies which are focused on the link between stylized facts of bank stock returns and some aspects of volatility This link is important because the distributions of returns underpin volatility and financial modelling of investment assets. This paper fills this empirical gap and anticipates related future work in systematic stock market characterisation and development (SSMCD) [11] [12], for example, argue that Nigerian policy makers need to understand the volatilities in the financial system at overall market, sector- and company-specific levels, in order to gear monetary, macroeconomic and fiscal policies towards enhancement of economic performance, GDP growth, competitiveness and asset price stability; see Aliyu [4]. Further rationale for the paper and its focus on Nigeria as a developing country is provided later in this introduction
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