Title: Response of stock return volatility to money market rates in Nigeria

Authors: Stephen Friday Aleke; Collins Okechukwu Irem; Chinonso John Ugwoke; Oketa Chiamaka Eunice

Addresses: Department of Banking and Finance, Alex Ekwueme Federal University, Ndufu Alike, Ebonyi State, Nigeria ' Department of Banking and Finance, Alex Ekwueme Federal University, Ndufu Alike, Ebonyi State, Nigeria ' Department of Accountancy, Alex Ekwueme Federal University, Ndufu Alike Ebonyi State, Nigeria ' Department of Accountancy, Alex Ekwueme Federal University, Ndufu Alike Ebonyi State, Nigeria

Abstract: This study examined the effect of inter-bank rates (IBR) and prime lending rates (PLR) on stock market return volatility in Nigeria from January 2002 to December 2016. Descriptive statistics, unit root test (URT), heteroscedasticity, autocorrelation and GARCH (1.1) models were used to examine stock market returns volatility. A diagnostic test was conducted to ascertain the robustness of the estimated GARCH model. It was found that volatility clustering persists in the Nigerian stock market, suggesting that volatility shocks from the previous period will not disappear in the current period for a long time. Consequently, the government should establish a mechanism for monitoring banks' foreign exchange activities to reduce the high cost of borrowing among banks and reduce their liquidity pressures. A reduction in prime lending rates by banks to their customers/investors will encourage them to borrow more.

Keywords: stock returns; volatility; inter-bank rate; IBR; prime lending rate; PLR; Nigeria; all share index; ASI; unit root test; URT.

DOI: 10.1504/AJESD.2024.136063

African Journal of Economic and Sustainable Development, 2024 Vol.9 No.3, pp.219 - 238

Accepted: 30 Oct 2022
Published online: 15 Jan 2024 *