Test of Price Volatility: A Case of the Nigerian Cattle Market

Abstract

Purpose: The research investigated variation of cattle prices in Nigeria. Specifically, the research: determined the presence of volatility in cattle prices, determined the degree of volatility of the cattle prices and estimated the level of persistence of the volatility of the cattle prices. Methodology: Multi-stage and simple random (balotting) sampling techniques were used to select two states each from five out of the six geo-political zones in Nigeria, except South-East zone which was not represented due to unavailability of data. A total of ten states were selected. Data were analysed using the Generalised Auto Regressive Conditional Heteroscedasticity (GARCH)). Findings: Results of the GARCH model revealed that prices were highly volatile in all the selected states except Yobe, since all coefficients were close to one and ranged from 0.71 to 0.88. The sum of the α + β coefficients were all close to or greater than one and ranged from 0.98 to 1.30, which indicated volatility was persistent. It was discovered that the prices in Nigerian cattle markets were highly volatile and persistent in volatility. Recommendations: There is need to improve on the market information system and transportation and infrastructural facilities in order to ensure a good and efficient market and pricing system in the country. Hedging via Futures through contract agreement and/or Futures trading could be solutions to price volatility.