Does Volatility Risk Affect Nigerian Real Estate Stock Pricing Dynamics?

Abstract

Volatility index (VIX) is one of the critical systematic risks that investors take caution and are conscious of when taking investment decision in capital market. With the peculiarities of the Nigerian real estate stock dynamics, the study addressed a question on whether the Nigerian real stock pricing is characterised by volatility risk and its significance on the stock trading in the capital market. Daily price of four (4) operating Nigerian real estate investment trust (REIT) namely Skye Shelter, Union Homes, United Africa Company of Nigeria (UACN) and UACN Property Development Company (PUDC) were extracted from the Nigeria Exchange Group (NGX) Database and published statistical bulletin of Nigerian real estate stock companies from 2010-2019. The study deployed trend analysis, conducted a unit root test using ADF and residual diagnostic test comprising autocorrelation, ARCH effect and normality tests, and generalised autoregressive conditional heteroskedasticity (GARCH) model to analyse volatility risk in the real estate stock over the year under reviewed. The result showed that the real estate stock pricing experienced downward trend over the reviewed period meaning a continuous fall in the stock price. Also the dynamic in the stock prices is auto-correlated with a statistical significant relationship between information on price history and today’s price reaction but in non-linear reaction (random walk). The dynamic in real estate stock pricing is characterised with little fluctuations over the study period, indicating that the stock is non-volatile. The study concluded that the exposure of the real estate stock pricing to broad capital market is less affected by volatility risk.