MODELING VOLATILITY TRANSMISSION IN STOCK AND BOND MARKETS OF THE FRONTIER ECONOMIES USING MULTIVARIATE GARCH MODELS
MODELING VOLATILITY TRANSMISSION IN STOCK AND BOND MARKETS OF THE FRONTIER ECONOMIES USING MULTIVARIATE GARCH MODELS
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Date
2017-01
Authors
BICHI, Safiya Ismaila
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Abstract
The study of volatility transmission between stock and bond markets is not only important for predicting stock returns and bond yields but for understanding the behavior and source of cross-market volatility transmission. This dissertation investigated the different formulations of Multivariate GARCH frameworks and adapted the two most popular used ones – the Baba-Engle-Kraft-Kroner (BEKK)- Generalize Autoregressive Conditional Heteroscedasticity (GARCH) model and the Dynamic Conditional Correlation (DCC)- GARCH model, in studying the dynamics of volatility transmission between Nigerian Stock and Bond Markets , and the Co-movement between United State and Nigeria’s bond markets. The study also considered the impact of shocks and volatility from one market to the other as well the long memory volatility of both markets. The study revealed that own past shocks affect the current volatility of the Nigeria stock market and a bidirectional shock transmissions between the Nigerian stock and bond markets, as well as evidence of weak negative relationship between the Nigerian Bond and US Bond Markets. The study also found that the DCC model is a more appropriate model for modeling intra-national volatility transmission (between stock and bond returns) and international transmission of bond market volatility in frontier markets (US and Nigerian bond market). In all, these findings will be informative to investors and Nigeria’s federal government for both investment and policy formulation.
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A DISSERTATION SUBMITTED TO THE SCHOOL OF POSTGRADUATE STUDIES, AHMADU BELLO UNIVERSITY, ZARIA IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE AWARD OF A MASTERS DEGREE IN STATISTICS DEPARTMENT OF STATISTICS, FACULTY OF PHYSICAL SCIENCES AHMADU BELLO UNIVERSITY, ZARIA, NIGERIA
Keywords
MODELING VOLATILITY TRANSMISSION,, BOND MARKETS,, MULTIVARIATE GARCH MODELS,, FRONTIER ECONOMIES,