Journal of Economics and Behavioral Studies (ISSN: 2220-6140) Vol. 8, No. 6, pp. 153-160, December 2016 153 Modelling Volatility Persistence and Asymmetry with Structural Break: Evidence from the Nigerian Stock Market Aluko Olufemi Adewale 1 , Adeyeye Patrick Olufemi 2* , Migiro Stephen Oseko 2 1 University of Ilorin, Ilorin, Kwara State, Nigeria 2 University of KwaZulu-Natal, Westville, Durban, South Africa olufemiadewale6@gmail.com, adeyeyepo@gmail.com * , stephen410@gmail.com Abstract: This study contributes to existing literature on the Nigerian stock market by modelling the persistence and asymmetry of stock market volatility taking into account structural break. It utilises returns generated from data on monthly all-share index from January 1985 to December 2014. After identifying structural break in the return series, the study splits the sample period into pre-break period (January 1985 – November 2008) and post-break period (January 2009 – December 2014). Using the symmetric GARCH model, the study shows that the sum of ARCH and GARCH coefficients is higher in the pre-break period compared to the post-break period, thus indicating that persistence of shock to volatility is higher before structural break in the market. The asymmetric GARCH model provides no evidence of asymmetry as well as leverage effect with or without accounting for structural break in the Nigerian stock market. This study concludes that the Nigerian stock market is characterised by inefficiency, high degree of uncertainty and non- asymmetric volatility. Keywords: Persistence, asymmetry, stock market volatility, structural break 1. Introduction The Nigerian stock market started trading on 15 th August, 1961. It ranks among the top African stock markets in terms of liquidity, market capitalisation and volume of transactions. The market is also a leading financial market for portfolio investment in Africa (Oloko, 2016). The International Finance Corporation (IFC) classifies the Nigerian stock market as an emerging stock market. Harvey (1995) argued that emerging stock markets are characterised by high volatility. Investors in the stock market are interested in the volatility of the stock market because of its implication on their investment. Stock market volatility is the uncertainty associated with returns on assets in the stock market. It is also an index for measuring the risky nature of the stock market. High volatility in the stock market impedes investment in stock assets. Shittu, Yaya and Oguntade (2009) suggested that high level of volatility could mean huge losses or gain, hence greater uncertainty. Persistence and asymmetry are two main phenomena associated with stock volatility. Investors’ understanding of these phenomena is important in guiding them in portfolio management. As observed from prior studies such as Atoi (2014), Adesina (2013), Emenike (2010), high volatility persistence is exhibited in the Nigerian stock market. However, evidence on the asymmetry of volatility in the Nigerian stock market is few and mixed. Also, modelling volatility with structural break has been largely ignored in the Nigerian stock market. According to Kumar and Maheswaran (2012), volatility of returns of financial assets tends to be highly affected by infrequent structural breaks as a result of domestic and global macroeconomic and political occurrences. Lamoureux and Lastrapes (1990) argued that volatility persistence is exaggerated if structural breaks are not considered. Investors tend to behave differently after structural break in the stock market because its occurrence may affect the persistence and asymmetry of stock market volatility. Failure to account for structural break in the stock market may lead to wrong inferences and portfolio decisions (Turtle & Zhang, 2014). Therefore, this study models the persistence and asymmetry of the Nigerian stock market volatility with structural break. The rest of the paper follows the following order: Section 2 provides the literature review, Section 3 presents the data issues and preliminary analyses, Section 4 discusses the models and estimation and lastly, Section 5 concludes the study. 2. Literature Review Theoretical Literature: The asset pricing theory assumes that investors are risk averse and risk-return relationship is positive and linear. This implies that if investors are risk averse, there is a positive correlation between volatility and returns in the stock market. In other words, risk-averse investors expect more returns