Volatility - return paradigm of foreign private portfolio investment in Nigeria

Abstract

The study aimed at capturing foreign private portfolio investment volatility as a determinant of its return. The study covered the periods between 1981 and 2013. An Exponential Generalized Autoregressive Conditional Heteroscedasticity (EGARCH) was specified and estimated using the maximum likelihood technique. The result reveals that foreign private portfolio investment volatility explains foreign private portfolio investment return. The result also revealed that good news has positive effect on foreign private portfolio returns while Momentum of risk in the system had profound effect on volatility. The EGARCH model significantly captures thick tailed returns and volatility clustering. News about volatility from previous period had no significant effect on current volatility. The persistence of volatility shocks were close to unity so that the shocks die out rather slowly. These outcomes suggest that investment selection should consider investment based on the dominance principle; negatively signed leverage term; lower momentum of risk; lesser shocks and innovation; less persistent volatility shock; and reasonable capacity to accommodate effects of ?non ? trading periods?, and accumulate predictable information releases or forecastable events at a higher rate?.?