Comparative study of the Application of Seasonal ARIMA and Exponential Smoothing Methods in Nigerian Stock Exchange Market

This paper compared the performance of two forecasting models (Seasonal ARIMA and Exponential smoothing) in an attempt to identify the model that fits properly in forecasting Nigerian stock exchange market. A two-staged approach to forecasting was carried out using monthly data for the period of 1985 to 2013. The models were assessed in similarly structured setting at the beginning, and then best models identified at this level were compared in a differently structured setting. The results show that Seasonal ARIMA (4,1,3)(3,1,2)12 and Holt-Winters multiplicative smoothing method are effective in forecasting Nigerian stock exchange market in a similarly structured setting. Nonetheless, when the two models were compared under different structures, the performance of Holt-Winters multiplicative smoothing method outperformed that of Seasonal ARIMA (4,1,3)(3,1,2)12. This suggests that Holt-Winters multiplicative smoothing method with Alpha (0.01), Delta (0.11) and Gamma (0.11) is more effective in forecasting Nigerian stock exchange market in the short run and it can be used to aid planning processes in the stock exchange market. Likewise, the seasonality pattern that characterizes stock exchange highlights the need to promote more of stock exchange market so as to lessen the negative impacts associated with it. The two models can be adequately used to forecast stock exchange data as the results have shown their potentiality in that regard.