Time Series Analysis on Monthly Stock Market Returns of the Nigerian Stock Exchange: An Arima Modeling Approach

Abstract

This research work studied the autoregressive integrated moving average (ARIMA) model that best fitted monthly stock market returns of the Nigerian Stock Exchange between January, 2008 to September, 2018. The study collected secondary data from Central Bank of Nigeria (CBN) Statistical Bulletin 2018 on monthly stock market index of NSE to compute the monthly stock market returns. The Box-Jenkins ARIMA modeling was adopted for this work. The series was tested for stationarity using Augmented Dickey Fuller test. Several ARIMA (p, d, q) models were applied to the monthly stock market returns to ascertain the best fit model for the series. The ARIMA (2, 0, 3) model was selected as the best fit for the data since it has minimum values of Akaike Information Criteria and Mean Squared Errors. The forecasted period showed a market with an unstable monthly stock market returns. Therefore, investors were advised to weigh the risks before venturing into the market to invest.

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“…Eke [7] asserted that the ARIMA (2,0,3) is the best fit model for predicting the Nigerian Stock Exchange monthly stock market returns over a ten-year period. This assertion was based on the use of the Box-Jenkins technique, as well as the AIC and MSE performance criteria.…”