Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/237429 
Year of Publication: 
2020
Citation: 
[Journal:] CBN Journal of Applied Statistics [ISSN:] 2476-8472 [Volume:] 11 [Issue:] 2 [Publisher:] The Central Bank of Nigeria [Place:] Abuja [Year:] 2020 [Pages:] 65-83
Publisher: 
The Central Bank of Nigeria, Abuja
Abstract: 
This study is designed to model and forecast Nigeria's stock market using the AllShare Index (ASI) as a proxy. By employing the Markov regime-switching autore-gressive (MS-AR) model with data from April 2005 to September 2019, the studyanalyzes the stock market volatility in three distinct regimes (accumulation or distri-bution - regime 1; big-move - regime 2; and excess or panic phases - regime 3) ofthe bull and bear periods. Six MS-AR candidate models are estimated and based onthe minimum AIC value, MS(3)-AR(2) is returned as the optimal model among the sixcandidate models. The MS(3)-AR(2) analysis provides evidence of regime-switchingbehaviour in the stock market. The study also shows that only extreme events canswitch the ASI returns from regime 1 to regime 2 and to regime 3, or vice versa. Itfurther specifies an average duration period of 9, 3 and 4 weeks for the accumu-lation/distribution, big-move and excess/panic regimes respectively which is an evi-dence of favorable market for investors to trade. Based on Root Mean Square Errorand Mean Absolute Error, the fitted MS-AR model is adjudged the most appropriateASI returns forecasting model. The study recommends investments in stock across theregimes that are switching between accumulation/distribution and big-move phasesfor promising returns.
Subjects: 
All share index
Markov process
regime switching
stock market
volatility
JEL: 
C13
C22
C52
C58
Persistent Identifier of the first edition: 
Document Type: 
Article

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