Wavelet Analysis of Stocks in the Nigerian Capital Market

Abstract

In this paper, the relationship between some selected stocks in the Nigerian Capital Market was investigated using wavelet analysis. The selected stocks are Dangote Cement (Dans) representing the housing sector, Julius Berger (Jbger) representing the Construction industry, Nestle Nigerian Plc (Nese) representing the food and beverages sector and United Bank of Africa (Ubas) representing the banking sector. The goal is to find out how the different sector relate to each other, t also serve as a guide for investors in the Nigerian stock Market. The result shows that on low frequencies, the coherence between stocks are low but volatile. The cross wavelet showed that there is little or no covariability in the magnitude of the movement among the selected stocks but there are co-variability in the direction of the movement. The continuous wavelet transform (wavelet spectrum) shows that for all the stocks, there is high volatility at the low frequency scales and low volatility at high frequency scales. The discrete wavelet transform (DWT) suggests that in the absence of noise, Nese (representing the food and beverage industry is the most volatile stock.