VOLATILITY ANALYSIS OF CRUDE OIL PRICES IN NIGERIA

Abstract

This study investigates the symmetric and asymmetric characteristics as well as the persistence of shocks in the Nigerian crude oil returns, utilizing monthly and daily crude oil prices spanning from January 2006 to September 2022 and November 3, 2009, to November 4, 2022, respectively. Descriptive statistics, normality measures, time plots, and the Dickey-Fuller Generalized Least Squares unit root test were employed to analyze the series properties. Symmetric ARMA (1,1)-GARCH (2,1) and asymmetric ARMA (1,1)-TARCH (2,1) models for monthly and daily returns, with varying innovation densities, were utilized, alongside symmetric GARCH (1,1) and asymmetric TARCH (1,1) models. Model selection criteria including AIC, SIC, HQC, and log likelihood guided the order and error distribution selection. Results revealed non-normal distributions for both monthly and daily prices and returns, non-stationarity in prices, and weak stationarity in log returns with ARCH effects detected in both returns. Symmetric models exhibited volatility clustering, high shocks persistence, mean-reverting behaviour, and predictability in both returns. Asymmetric models identified asymmetry with leverage effects in both returns, indicating that negative shocks induce greater volatility than positive shocks of the same magnitude. Mean reversion and volatility half-life findings suggested that crude oil prices tend to revert to their long-run averages. The study recommended promoting market information flow and aggressive trading to enhance market depth and mitigate the volatile nature of the Nigerian crude oil market.