International Journal of Economics, Finance and Management Sciences 2016; 4(5): 263-268 http://www.sciencepublishinggroup.com/j/ijefm doi: 10.11648/j.ijefm.20160405.15 ISSN: 2326-9553 (Print); ISSN: 2326-9561 (Online) A Test of Asymmetric Volatility in the Nigerian Stock Exchange Aguda Niyi A. Department of Banking and Finance, Waziri Umaru Federal, Polytechnic Birnin-Kebbi, Kebbi State, Nigeria Email address: niyiaguda1424@yahoo.com To cite this article: Aguda Niyi A. A Test of Asymmetric Volatility in the Nigerian Stock Exchange. International Journal of Economics, Finance and Management Sciences. Vol. 4, No. 5, 2016, pp. 263-268. doi: 10.11648/j.ijefm.20160405.15 Received: March 8, 2016; Accepted: May 12, 2016; Published: September 28, 2016 Abstract: This study seeks to test for the presence of asymmetric effect in the Nigerian Stock Exchange. In order to achieve the objective of the study, the researcher obtains the average market return, the equilibrium market returns generated by the risk factors of the APT, and then subjects them to asymmetric tests using the TAR-GARCH technique. Findings from the study reveal that equilibrium market return generated by pre-specified APT does not significantly respond to information asymmetry. This implies that is volatility does not really change with information. However, the equilibrium market return generated by statistical APT exhibits the presence of information asymmetry whereby the volatility of stock returns significantly responds to information. This reveals the presence of leverage effect in the Nigerian stock market whereby stock returns volatility increases with bad news but the volatility reduces with good or positive news. The researcher recommends that government agents in respect of this market should provide more adequate means of information diffusion into the market at zero cost to all participants. Keywords: Information Asymmetry, Stock Exchange, Pre-specified APT Model, Statistical APT, TAR-GARCH, Market Return 1. Introduction Information drives prices of securities in the market. As a matter of fact many informational factors influence the changes in stock prices. This is market efficiency which, according to Brealey and Meyers (2003) [1], stipulates that stock prices are informationaly efficient which means that prices correctly reflect all available information and quickly respond to any new information at the moment it becomes available. These informational factors include information about the company fundamentals, external factors and market behaviours. Company fundamentals include factors like changes in management, creation of new assets, changes in dividends and earnings, and so on. On the other hand, external factors include the monetary policy which influences macro-economic variables like inflation and money supply. These have been proven by Anokye&Tweneboah, 2008 [2]; Chen, Roll & Ross, 1986 [3] among others, to have significant influence on changes in stock returns. The response of volatility to information (either good or bad) is referred to asymmetry. Chiang and Doong, (2001) explaining the asymmetric effects, points out that negative shock to stock return tend to bring about higher volatility than a positive shock of equal magnitude [6]. They also point out that recent empirical evidence has indicated asymmetry in the impact of news whereby bad news and good news may have different impacts on predicting future volatility. Avramov, et al. (2006) point out that asymmetric effects result from stock trading activities.[8] They explain that informed investors sell stock after prices rise leading to a decline in volatility; while the uninformed traders however, sell stock when prices drop which increases stock return volatility. Many other studies have also reported asymmetric relationship between volatility of securities and returns whereby positive returns bear a lesser effect on future stock volatility than negative stock returns of similar magnitude. The two main explanations being advanced for this behavior are leverage effect and volatility feedback effect. Although, extensive studies have been carried out on the asymmetric effect on conditional variance in the advanced and other emerging markets, not much however, has been done in the Nigerian capital market. Prominent among these studies include the studies of Nelson, (1991) using the Exponential