Economy
Firm Unveils Volatility Index for Nigerian Stock Market
By Quantitative Financial Analytics
Stock market volatility is one of those words that are being thrown around every now and then when describing stock market behaviours.
For example, on January 29, 2016, The Vanguard had an article entitled, “Stock Market Volatility – Operators Seek Govt Intervention Fund”, and On November 11, 2017, it also had another article, The ‘Big Oil’ and market volatilities”.
In the same way, ThisDay newspaper, on June 23, 2014 wrote “Stock Market Volatility Persists”. Even on LinkedIn pages, people write about market volatilities like the one written by Rotimi Fakayejo, MD Enterprise StockBrokers Plc on September 9, 2015, who posted the article “Gainers & Losers of the volatility of the Nigerian Bourse” on his LinkedIn page.
The Guardian on its business page wrote, “Equities rise on the Exchange amid volatility” on February 8, 2015.
Those are excellent articles both in content and intent although some made it look like market volatility is necessarily a bad thing. But one thing lacking in the articles is the quantification of how volatile the Nigerian market had been or was expected to be.
There have been various explanations for increased or subdued volatilities in the market as some of those articles opined. One reason is the arrival of new and unanticipated information that tends to or alters the expected return on a stock.
News items like the Brexit, the Chinese contagion, escalation of the US-North Korea impasse can have remarkable effects on market volatility. Changes in volatility can even emanate from changes in investors’ behaviours like when investors panic in anticipation of an election result or FED or Central bank decisions on interest rates, etc.
Volatility does not imply that the market is collapsing; rather, it implies that the market is behaving in such a way that it is more difficult to make accurate predictions about the market based on currently prevailing data and information.
Depending on one’s investment strategy and horizon and subject to the availability of tradable financial instruments, investors can manage and even profit from volatility.
In more advanced markets with tradable financial products like variance and volatility swaps, volatility may present opportunities for profit.
It follows therefore that knowledge of volatility of returns in stock markets’ behaviour is of paramount importance to investors because such knowledge helps investors to know or gain more information on the data generating such returns.
Knowing how volatile the stock market has been or is expected to be, guides investors in their decision-making process as such knowledge enables them to access both the return potential of the market as well as the uncertainty of such returns.
Volatility is the “magnitude of movements regardless of direction” and stock market volatility relates to the magnitude of price changes without paying attention to whether the change is up or down.
Stock market volatility is captured by two broad measures: implied and realized volatility. Realized volatility differs from implied volatility.
While implied volatility is a forward-looking measure, realized volatility is historical or backward looking.
Implied volatility answers the question, what is the expected volatility of the market in so and so time while realized volatility answers the question, what was or is the actual market volatility in so and so period.
While realized volatility is based on the actual movement of an underlying, implied volatility is based on a value derived from associated options prices. Realized volatility measures real risk while implied volatility measures anticipated risk.
Indices that measure volatility abound the world over especially in more advanced markets. The Chicago Board of Exchange (CBOE)’s VIX, otherwise called the fear gauge, measures implied volatility in the US market while India VIX is a volatility index based on the NIFTY Index Option prices in India and is meant to measure implied volatility in Indian stock market.
In the UK, implied volatility is measured with the FTSE IVI and is based on the index’s underlying option prices. In abundance also are realized volatility measures in more advanced markets like those calculated by S&P Dow Jones.
Currently, there is no index that measures implied or realized volatilities of the Nigerian stock market. The absence of an implied volatility measure is understandable as such is derivable from options and options are non-existent in the Nigerian market.
Realized volatility on the other hand, is derivable from historical data. To fill this gap, analysts at Quantitative Financial Analytics have come up with a Realized Volatility Index for the Nigerian Market.
The index is a one-month look back volatility measure of the NSE All Share index, (hereinafter called the underlying index). It assumes a 21-day monthly trading period and multiplies the result by 100 to reflect the index as a percentage.
The index is calculated daily and for all the trading dates that its underlying index (ASI) is calculated. The index has been calculated from 1998 to present and gives a bird’s eye view of the most and least volatile periods of the Nigerian stock market.
Comparatively speaking, the S&P 500 1-month realized index as at November 22, 2017 was 5.85, down from 5.87 the previous day while the Quantitative Financial Analytics (QFA) Nigeria All Share Index realized volatility index for corresponding period was 6.45, down from 6.55 the previous day.
Now, it is easy to talk about market volatility in Nigeria with some specifics and ability to compare with other markets and periods, at least in realized terms.
Quantitative Financial Analytics continues to add value to the Nigerian market with its many analytics.
It will be recalled that not long above, it rolled out its Fixed Income Analytics Report, which is a report with robust data and information on sovereign and corporate bonds trading in the Nigerian market.
For more information on the index and other reports, please contact us at [email protected]
By Dipo Olowookere
Investors at the Nigerian Exchange (NGX) Limited have continued to show excitement for the full-year earnings of companies on the exchange so far.
On Friday, Customs Street further appreciated by 1.01 per cent as more organization released their financial statements for the 2025 fiscal year.
During the session, traders continued their selective trading strategy, with the energy sector going up by 2.47 per cent at the close of business despite profit-taking in the banking counter, which saw its index down by 0.11 per cent.
Yesterday, the insurance space grew by 2.16 per cent, the industrial goods segment expanded by 1.70 per cent, and the consumer goods industry jumped by 0.42 per cent.
Consequently, the All-Share Index (ASI) increased by 1,722.13 points to 171,727.49 points from 170,005.36 points, and the market capitalisation soared by N1.106 trillion to N110.235 trillion from the N109.129 trillion it ended on Thursday.
Business Post reports that there were 59 appreciating stocks and 19 depreciating stocks on Friday, representing a positive market breadth index and strong investor sentiment.
The trio of Omatek, Deap Capital, and NAHCO gained 10.00 per cent each to sell for N2.64, N6.82, and N136.40 apiece, as Zichis and Austin Laz appreciated by 9.98 per cent each to close at N6.72 and N5.40, respectively.
Conversely, The Initiates depreciated by 9.74 per cent to N19.45, DAAR Communications slumped by 7.32 per cent to N1.90, United Capital crashed by 6.55 per cent to N18.55, Coronation Insurance lost 5.71 per cent to quote at N3.30, and First Holdco shrank by 5.53 per cent to N47.00.
The activity chart showed an improvement in the activity level, with the trading volume, value, and number of deals up by 33.77 per cent, 93.27 per cent, and 10.63 per cent, respectively.
This was because traders transacted 953.8 million shares worth N43.1 billion in 51,005 deals compared with the 713.0 million shares valued at N22.3 billion traded in 46,104 deals a day earlier.
Fidelity Bank was the most active with 92.4 million units sold for N1.8 billion, Chams transacted 69.2 million units valued at N310.9 million, Deap Capital exchanged 59.1 million units worth N382.7 million, Access Holdings traded 57.2 million units valued at N1.3 billion, and Tantalizers transacted 48.6 million units worth N228.2 million.
By Adedapo Adesanya
The value of the Naira contracted against the United States Dollar on Friday by 13 Kobo or 0.01 per cent to N1,366.19/$1 in the Nigerian Autonomous Foreign Exchange Market (NAFEX) from the previous day’s value of N1,366.06/$1.
According to data from the Central Bank of Nigeria (CBN), the Nigerian currency also depreciated against the Pound Sterling in the same market window yesterday by N2.37 to N1,857.75/£1 from the N1,855.38/£1 it was traded on Thursday, and further depleted against the Euro by 57 Kobo to close at N1,612.52/€1 versus the preceding session’s N1,611.95/€1.
In the same vein, the exchange rate for international transactions on the GTBank Naira card showed that the Naira lost N8 on the greenback yesterday to N1,383/$1 from the previous day’s N1,375/$1 and at the black market, the Nigerian currency maintained stability against the Dollar at N1,450/$1.
FX analysts anticipate this trend to persist, primarily influenced by increasing external reserves, renewed inflows of foreign portfolio investments, and a reduction in speculative demand.
In the short term, stability in the FX market is expected to continue, supported by policy interventions and improving market confidence.
Nigeria’s foreign reserves experienced an upward trajectory, increasing by $632.38 million within the week to $46.91 billion from $46.27 billion in the previous week.
The Dollar appreciation this week appears to be largely technical, serving as a correction to the substantial losses experienced from mid- to late January.
Meanwhile, the cryptocurrency market slightly appreciated, with Bitcoin (BTC) climbing near $68,000, up nearly 5 per cent since hitting $60,000 late on Thursday after investor confidence in crypto’s utility as a store of value, inflation hedge, and digital currency faltered.
The sell-off extended beyond crypto, with silver plunging 15 per cent and gold sliding more than 2 per cent. US stocks also fell.
The latest recoup saw the price of BTC up by 4.7 per cent to $67,978.96, as Ethereum (ETH) appreciated by 6.3 per cent to $2,021.10, and Ripple (XRP) surged by 9.5 per cent to $1.42.
In addition, Solana (SOL) grew by 7.3 per cent to $85.22, Cardano (ADA) added 6.1 per cent to trade at $0.2683, Dogecoin (DOGE) expanded by 5.4 per cent to $0.0958, Litecoin (LTC) rose by 5.2 per cent to $53.50, and Binance Coin (BNB) jumped by 2.3 per cent to $637.79, while the US Dollar Tether (USDT) and the US Dollar Coin (USDC) traded flat at $1.00 each.
By Adedapo Adesanya
Oil prices settled higher on Friday as traders worried that this week’s talks between the US and Iran had failed to reduce the risk of a military conflict between the two countries.
Brent crude futures traded at $68.05 a barrel after going up by 50 cents or 0.74 per cent, and the US West Texas Intermediate (WTI) crude futures finished at $63.55 a barrel due to the addition of 26 cents or 0.41 per cent.
Iran and the US held negotiations in Muscat, the capital of Oman, on Friday to overcome sharp differences over Iran’s nuclear programme.
It was reported that the talks had ended with Iran’s foreign minister saying negotiators will return to their capitals for consultations and the talks will continue.
Regardless, the meeting kept investors anxious about geopolitical risk, as Iran wanted to stick to nuclear issues while the US wanted to discuss Iran’s ballistic missiles and support for armed groups in the region.
Any escalation of tension between the two nations could disrupt oil flows, since about a fifth of the world’s total consumption passes through the Strait of Hormuz between Oman and Iran.
Saudi Arabia, the United Arab Emirates, Kuwait and Iraq export most of their crude via the strait, as does Iran, which is a member of the Organisation of the Petroleum Exporting Countries (OPEC).
According to Reuters, Iran objected to the presence of any US Central Command (CENTCOM) or other regional military officials, saying that would jeopardise the process.
The current confrontation was sparked by more than two weeks of unrest in Iran that saw authorities launch a deadly crackdown that killed thousands of civilians and shocked the world. As reports of the deaths trickled out of Iran, US President Donald Trump threatened to strike Iran if any of the tens of thousands of protesters arrested were executed.
Meanwhile, Kazakhstan’s planned oil exports could fall by as much as 35 per cent this month via its main route through Russia, as the country’s top oil company, Tengiz oilfield, slowly recovers from fires at power facilities in January.
ING analysts have pointed out Iran’s neighbour, Iraq, and a disagreement with the US as another bullish factor for oil prices. It seems Iraqi politicians favour Mr Nouri al-Maliki as the country’s next Prime Minister, but the US thinks Mr al-Maliki is too close to Iran. President Trump has already threatened the oil producer with consequences if he emerges as PM.
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