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 analytics@mutualfundsnigeria.com
By Dipo Olowookere
The first trading session of this week at Customs Street ended with a marginal 0.03 per cent loss on Monday following profit-taking in financial and energy sectors.
The counters closed lower during the session as investors re-caliberated their portfolios due to the instability in the global financial markets.
The All-Share Index (ASI) of the Nigerian Exchange (NGX) Limited was down yesterday by 33.72 points to 104,529.62 points from 104,563.34 points and the market capitalisation depleted by N22 billion to N65.685 trillion from N65.707 trillion.
Business Post reports that the banking index crumbled by 1.99 per cent, the insurance sector depreciated by 0.36 per cent, and the energy counter lost 0.19 per cent, while the consumer goods space improved by 0.08 per cent, with the industrial goods and commodity indices closing flat.
It was observed that despite the disappointing outcome, the market breadth index was positive after the bourse ended with 28 price gainers and 24 price losers, representing a strong investor sentiment.
International Energy Insurance lost 9.76 per cent to trade at N1.48, Consolidated Hallmark shed 8.33 per cent to N2.75, Japaul went down by 7.46 per cent to N1.86, Chams dropped 6.98 per cent to N2.00, and Neimeth eased by 6.94 per cent to N2.68.
Conversely, Abbey Mortgage Bank rose by 9.95 per cent to N6.74, UPDC gained 9.82 per cent to sell for N3.13, Guinea Insurance increased by 9.52 per cent to 69 Kobo, VFD Group jumped by 9.46 per cent to N96.00, and Sovereign Trust Insurance soared by 9.41 per cent to 93 Kobo.
Yesterday, a total of 428.2 million shares worth N10.5 billion exchanged hands in 14,583 deals versus the 380.0 million shares worth N10.1 billion traded in 10,791 deals last Friday, implying a rise in the trading volume, value, and number of deals by 12.68 per cent, 3.96 per cent and 35.14 per cent, respectively.
The activity chart was topped by Access Holdings with 56.0 million equities sold for N1.2 billion, Zenith Bank traded 55.4 million stocks valued at N2.8 billion, Fidelity Bank transacted 39.0 million shares worth N725.9 million, UBA exchanged 33.2 million equities valued at N1.0 billion, and GTCO traded 31.0 million stocks for N2.1 billion.
By Adedapo Adesanya
The oil market was slightly up on Monday on the back of exemptions for some electronics from US tariffs and data showing a sharp rebound in China’s crude imports in March.
During the trading session, Brent crude futures improved by 12 cents or 0.2 per cent to $64.88 per barrel and the US West Texas Intermediate (WTI) crude futures grew by 3 cents to trade at $61.53 a barrel.
The President of the United States, Mr Donald Trump, last Friday granted exclusions from steep tariffs on smartphones, computers, and some other electronic goods imported largely from China.
It was the latest in a series of policy announcements that imposed tariffs and then walked them back, spurring uncertainty for investors and businesses.
President Trump later said on Sunday he would announce the tariff rate on imported semiconductors in the coming days.
For the Chinese imports, the exclusion of the tech products applies only to President Trump’s reciprocal tariffs, which climbed to 125 per cent this week as the prior 20 per cent duties on all Chinese imports that he said were related to the US fentanyl crisis remain in place.
China increased its tariffs on US imports to 125 per cent last Friday, hitting back against the American president’s decision to further raise duties on Chinese goods and increasing the stakes in a trade war that threatens to upend global supply chains.
These developments raise concerns that the trade war could weaken global economic growth and dent fuel demand.
China’s crude oil imports in March rebounded sharply from the previous two months and were up nearly 5 per cent from a year earlier boosted by Iranian oil and a rebound in Russian deliveries.
The Organisation of the Petroleum Exporting Countries (OPEC) said in a monthly report on Monday that global oil demand will rise by 1.3 million barrels per day in 2025, down by 150,000 barrels per day from last month’s forecast, citing trade tariffs among the reasons.
Top market analysts like Goldman Sachs and UBS have also cut their forecast.
Goldman Sachs expects Brent to average $63 and WTI to average $59 for the remainder of 2025, with Brent averaging $58 and WTI $55 in 2026 while UBS reduced its Brent forecasts by $12 a barrel to $68.
The US could stop Iranian oil exports as part of President Trump’s plan to pressure Iran over its nuclear programme.
However, Iran and the US held talks in Oman on Saturday and agreed to reconvene next week.
By Adedapo Adesanya
Nigeria’s oil output decreased by 4.1 per cent to 1.40 million barrels per day in March from 1.46 million bpd in the previous month, according to the Organisation of the Petroleum Exporting Countries (OPEC).
This drop means Nigeria has now produced below its OPEC target for the second consecutive month and far below its 2.06 million targets contained in the 2025 national budget.
This decline could be attributed to attacks on pipelines in Rivers State that led to the declaration of state of emergency and the suspension of democracy in the oil-rich state by President Bola Tinubu.
Last month, Mr Tinubu announced the suspension of Governor Siminilayi Fubara and the State House of Assembly over political crisis in the state. This occurred after an oil facility in the state was attacked. He then appointed a retired military officer, Mr Ibokette Ibas as the sole administrator of Rivers State.
Despite the decline, Nigeria remains the largest oil producer in Africa, surpassing Algeria and Congo, which produce 909,000 barrels per day and 263,000 barrels per day, respectively.
However, according to data sourced from secondary sources, OPEC said Nigeria produced 1.51 million barrels per day in March as against 1.54 million barrels per day in February.
OPEC’s report also showed that crude production by the wider OPEC+ fell in March by 37,000 barrels per day to 41.02 million barrels per day due in part to reductions by Nigeria and Iraq.
“Total DoC crude oil production averaged 41.02 mb/d in March 2025, which is 37 tb/d lower, m-o-m,” OPEC said.
On April 12, the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) said the country’s oil production decreased to 1,400,783 barrels per day in March.
Although oil output dropped in March, NUPRC said the average crude oil production is 93 per cent of the 1.5 million barrels per day quota set for Nigeria by OPEC.
NUPRC adds condensates to its estimates, which are exempted by OPEC in its calculations.
On April 4, the OPEC and its allies decided to increase oil production by 411,000 barrels per day in May — amid declining oil prices.
OPEC also cut its 2025 global oil demand growth forecast on Monday for the first time since December, citing the impact of data received for the first quarter and trade tariffs announced by the United States.
OPEC forecasts that world oil demand would rise by 1.30 million barrels per day in 2025 and by 1.28 million barrels per day in 2026. Both forecasts are down 150,000 barrels per day from last month’s figures.
US President Donald Trump’s trade tariffs as well as a plan for higher output by OPEC+ have put downward pressure on oil prices this month and raised concern about economic growth.
In its monthly report report, OPEC lowered its world economic growth forecast this year to 3.0 per cent from 3.1 per cent and reduced next year’s to 3.1 per cent from 3.2 per cent.
Last month, OPEC said trade concerns would contribute to volatility but had kept forecasts steady, saying the global economy would adjust. However, that appears to have changed with recent developments.
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