Stock Return, Volatility And The Global Financial Crisis In An Emerging Market: The Nigerian Case

Abstract

This paper investigated the relation between stock returns and volatility in Nigeria using E-GARCH-in-mean model in the light of banking reforms, insurance reform, stock market crash and the global financial crisis. Using daily returns over the period 4 January 2004 to January 9, 2009, Volatility persistence, asymmetric properties and riskreturn relationship are investigated for the Nigerian stock market. The result also shows that volatility is persistent and there is leverage effect supporting the work of Nelson (1991) .The study found little evidence on the relationship between stock returns and risk as measured by its own volatility. The study found positive but insignificant relationship between stock return and risk. The result shows the banking reform in July 2004 and stock market crash since April 2008 negatively impacts on stock return while insurance reform and the global financial crisis have no impact on stock return. The stock market crash of 2008 is found to have contributed to the high volatility persistence in the Nigerian stock market especially during the global financial crisis period. The stock market crash is also found to have accounted for the sudden change in variance.

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