Version 1
: Received: 30 November 2018 / Approved: 4 December 2018 / Online: 4 December 2018 (03:16:48 CET)
How to cite:
Emenogu, N.G.; Adenomon, M.O.; Obinna, N.N. On the Volatility of Daily Stock Returns of Total Petroleum Company of Nigeria: Evidence from GARCH Models, Value-at-Risk and Backtesting. Preprints2018, 2018120043. https://doi.org/10.20944/preprints201812.0043.v1
Emenogu, N.G.; Adenomon, M.O.; Obinna, N.N. On the Volatility of Daily Stock Returns of Total Petroleum Company of Nigeria: Evidence from GARCH Models, Value-at-Risk and Backtesting. Preprints 2018, 2018120043. https://doi.org/10.20944/preprints201812.0043.v1
Emenogu, N.G.; Adenomon, M.O.; Obinna, N.N. On the Volatility of Daily Stock Returns of Total Petroleum Company of Nigeria: Evidence from GARCH Models, Value-at-Risk and Backtesting. Preprints2018, 2018120043. https://doi.org/10.20944/preprints201812.0043.v1
APA Style
Emenogu, N.G., Adenomon, M.O., & Obinna, N.N. (2018). On the Volatility of Daily Stock Returns of Total Petroleum Company of Nigeria: Evidence from GARCH Models, Value-at-Risk and Backtesting. Preprints. https://doi.org/10.20944/preprints201812.0043.v1
Chicago/Turabian Style
Emenogu, N.G., Monday Osagie Adenomon and Nweze Nwaze Obinna. 2018 "On the Volatility of Daily Stock Returns of Total Petroleum Company of Nigeria: Evidence from GARCH Models, Value-at-Risk and Backtesting" Preprints. https://doi.org/10.20944/preprints201812.0043.v1
Abstract
Total Nigeria Plc is a Marketing and Services subsidiary of Total; a multinational energy company operating in more than 130 countries and committed to providing sustainable products and services for its customers. For over 50 years, Total Nigeria Plc has remained the leader in the downstream sector of the Nigerian oil and gas industry. This study investigated the volatility of the stock price of Total Petroleum Nigeria plc using nine (9) GARCH models namely sGARCH, gjrGARCH, eGARCH, iGARCH, aPARCH, TGARCH, NGARCH, NAGARCH and AVGARCH. We also investigated the Value-at-Risk (VaR) and Backtesting of the Models. The aim actually of this study is to boost the confidence of the shareholders and investors of the Total Nigeria plc. To achieve this, daily stock price for Total petroleum Nigeria plc from secondary was collected from January 2nd 2001 to May 8th 2017. . The study used both normal and student t innovations, using Akaike Information Criterion (AIC) to select the best model, for normal innovations for log returns and cleansed log returns of Total plc, the eGARCH and sGARCH models performed best respectively, while NGARCH model performed best for student t innovation for both log returns and cleansed returns of Total plc. The persistence of the models are stable except in few cases where iGARCH, eGARCH where not stable. Also for student t innovation, the sGARCH and gjrGARCH fails to converge. The mean-reverting number of day for the returns of Total Nigeria plc differs from model to model. Evidence from the VaR Analysis revealed from the selected models revealed that the Risk of VaR losses is high at 99% confidence level, slightly high at 95% confidence level and better at 90% confidence level. Although The Duration-Based Tests of independence conducted revealed that the models are correctly specified since in all cases the null hypotheses were accepted. This means that the probability of an exception on any day did not depends on the outcome of the previous day. Finally, both the unconditional (Kupiec) and conditional (Christoffersen) coverage tests for the correct number of exceedances for both Total stock returns and cleansed returns. The tests revealed rejection of the models at 1% level of significance. This confirms that unconditional (Kupiec) and conditional (Christoffersen) coverage tests for the correct number of exceedances are reliable compared to the Duration-Based Tests of independence. Therefore we recommend that shareholders and investors in Total Nigeria plc are to remain and continue to investment in Total Nigeria plc because if there is any form of losses, the price of the stock has the potentials to improve in the future. Again, though the risk is high at 99% confidence level, this in line with the financial theory that states that an asset with high expected risk would pay higher return on the average.
Keywords
volatility; returns; stocks; total petroleum; akaike information criterion (AIC), GARCH; value-at-risk (VaR), backtesting
Subject
Computer Science and Mathematics, Probability and Statistics
Copyright:
This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
