| Abstract: | Abstract This paper considers two emerging markets that are under-researched, Kenya and Nigeria. It offers a comprehensive view of four time properties that emerged from the empirical time series literature on asset returns: (1) the predictability of returns from past observations; (2) the auto-regressive behavior of conditional volatility; (3) the asymmetric response of conditional volatility to innovations; and (4) the conditional variance risk premium. Results of the exponential GARCH (EGARCH) model indicate that asymmetric volatility found in the U.S. and other developed markets also characterized the Nigerian stock exchange. In Kenya, however, the asymmetric volatility coefficient is significant and positive, suggesting that positive shocks increase volatility more than negative shocks of an equal magnitude. The Nairobi Stock Exchange (KSE) returns series report negative but insignificant risk-premium parameters. In Nigeria (NSE), return series exhibit a significant and positive time-varying risk premium. The results also show that expected returns are predictable, that the auto-regressive return parameters (? 1 ) are significant in both Kenya and Nigeria. Finally, the GARCH parameter (b) is statistically significant, indicating that volatility persistence is present in the two emerging markets studied. |
