Shehu Usman Rano, Aliyu (2010): Does inflation has an Impact on Stock Returns and Volatility? Evidence from Nigeria and Ghana.
Download (141kB) | Preview
This study seeks to apply the generalized autoregressive conditional heteroskedasticity (GARCH) model to assess the impact of inflation on stock market returns and volatility using monthly time series data from two West African countries, that is, Nigeria and Ghana. In addition, the impact of asymmetric shocks was investigated using the quadratic GARCH model developed by Sentana (1995), in both countries. Results for Nigeria show weak support for the hypothesis which states that bad news exert more adverse effect on stock market volatility than good news of the same magnitude; while a strong opposite case holds for Ghana. Furthermore, inflation rate and its three month average were found to have significant effect on stock market volatility in the two countries. Measures employed towards restraining inflation in the two countries, therefore, would certainly reduce stock market volatility, improve stock market returns and boost investor confidence.
|Item Type:||MPRA Paper|
|Original Title:||Does inflation has an Impact on Stock Returns and Volatility? Evidence from Nigeria and Ghana|
|Keywords:||Stock Returns, Volatility, inflation|
|Subjects:||E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E31 - Price Level; Inflation; Deflation
G - Financial Economics > G1 - General Financial Markets > G15 - International Financial Markets
E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E52 - Monetary Policy
|Depositing User:||Usman Rano Aliyu|
|Date Deposited:||14. Apr 2011 21:13|
|Last Modified:||14. Feb 2013 08:36|
Adjasi, C. K.D., S.K. Harvey, and D. Agyapong (2008)“Effect of Exchange Rate Volatility on the Ghana Stock Exchange”, African Journal of Accounting, Economics, Finance and Banking Research, Vol. 3, Number 3.
Bekaert, Geert and Engstrom, Eric (2009) “Inflation and the Stock Market: Understanding the “Fed Model” http://ssrn.com/abstract=1125355
Bollerslev, Tim. (1986) “Generalized Autoregressive Conditional Heteroskedasticity”, Journal of Econometrics, April, 31:3, pp. 307–27.
Bollerslev, T.P, and J.M. Wooldridge, (1992) “Quasi-maximum Likelihood Estimation and Inference in Dynamic Models with Time-varying Covariances, Econometric Review, 11, 143-172.
Engle, Robert F. (1982) “Autoregressive Conditional Heteroskedasticity with Estimates of the Variance of United Kingdom Inflation”, Econometrica, 50:4, pp. 987–1007.
Engle, Robert F. (2001) “GARCH 101: The Use of ARCH/GARCH Models in Applied Econometrics” Journal of Economic Perspectives, Vol. 15, Number 4, pp.157-168.
Engle, R. F. (2004) “Risk and Volatility: Econometric Models and Financial Practice”, American Economic Review, 94, pp. 405-420.
Engle, R. F. and Bollerslev, T. (1986) “Modeling the Persistence of Conditional Variances”, Econometric Reviews 5, pp. 1-50.
Engle, R. F. and Ng, V. K. (1993) “Measuring and testing the impact of news on volatility”, Journal of Finance, 48, pp. 1749.1777.
Engle R.F., and J.G. Rangel (2005) “The SPLINE GARCH model for unconditional volatility and its global macroeconomic causes”, Mimeo, Presented at the World Congress of the Econometric Society, London.
Erb, C. B., C.R. Harvey and T.E. Viskanta (1995) “Inflation and World Equity Selection”, Financial Analyst Journal, November/December.
Fama, E. F. (1981) “Stock returns, real activity, inflation, and money”, American Economic Review, 71, pp. 545–65.
Davis, Nicolas and Kutan, Ali, M. (2003) Inflation and Output as Predictors of Stock Returns and Volatility: International Evidence, Applied Financial Economics, Number 13, pp. 693-700.
Hamilton, J.D, Lin (1993) “Stock Market Volatility and the Business Cycle, Journal of Applied Econometrics, 11, pp. 573-593.
Karolyi, G. A. (2001) “Why Stock Return Volatility Really Matters”, Preliminary and Incomplete version, February 2001.
Kaul, G. (1987) “Stock Returns and Inflation: The Role of Monetary Sector, Journal of Financial Economics, 18, pp.253-276.
Kontonikas, A., A. Montagnolib and N. Spagnolo (2006) “Stock Returns and Inflation: The Impact of Inflation Targeting” Department of Economics, University of Glasgow, Glasgow, UK, Email: firstname.lastname@example.org
Pindyck R. (1984) “Risk, Inflation and the Stock Market”, American Economic Review, 74, pp. 335-351.
Rigobon,R., and B.Sacks (2004) “The impact of monetary policy on asset price”, Journal of Monetary Economics, Vol.51, P.1553-1575.
Rizwan, Mohammad Faisal ; Khan, Safi Ullah.( 2007) “Stock Return Volatility in Emerging
Equity Market (Kse): The Relative Effects of Country and Global Factors”, International Review of Business Research Papers, Vol.3, No.2, pp. 362 – 375.
Saryal, F. S. (2007) “Does Inflation Have an Impact on Conditional Stock Market Volatility? Evidence from Turkey and Canada” International Research Journal of Finance and Economics, Issue 11, pp. 123 – 1333.
Schwert, G. William (1989) “Why does Stock Market Volatility Change Over Time?”, Journal of Finance, 44, 1115-1153.
Sentana, E. (1995) “Quadratic ARCH Models”, Review of Economic Studies, Number 62, pp. 639-661.