Financial Contagion and Its Impact on the Nigerian Stock Market
top of page
Asian Institute of Research, Journal Publication, Journal Academics, Education Journal, Asian Institute
Asian Institute of Research, Journal Publication, Journal Academics, Education Journal, Asian Institute

Economics and Business

Quarterly Reviews

ISSN 2775-9237 (Online)

asian institute research, jeb, journal of economics and business, economics journal, accunting journal, business journal, managemet journal
asian institute research, jeb, journal of economics and business, economics journal, accunting journal, business journal, managemet journal
asian institute research, jeb, journal of economics and business, economics journal, accunting journal, business journal, managemet journal
asian institute research, jeb, journal of economics and business, economics journal, accunting journal, business journal, managemet journal
crossref
doi
open access

Published: 11 September 2018

Financial Contagion and Its Impact on the Nigerian Stock Market

Amenawo I. Offoing, Hodo B. Riman, James B. Godwin

University of Calabar, Nigeria

asian institute research, jeb, journal of economics and business, economics journal, accunting journal, business journal, management journal

Download Full-Text Pdf

doi

10.31014/aior.1992.01.03.26

​

​

Abstract

The integration between markets is becoming tighter due to increased international financial transactions among countries. Following the emergence of globalization and integration of market, researchers have observed that during the periods of market turmoil the correlation between international stock markets increased significantly, while some countries reap from the transient turmoil, the LDCs have suffered adverse loses in their investment portfolios. The paper aimed at determining the effect of the expansion of selected foreign stock markets on the Nigerian Stock market using the Bayesian VAR model. The result of the study showed a negative effect of contagion from the American and Chinese market on the Nigeria market, with the effect being magnified following the drift in currency exchange rate. The analysis of the impulse response function of the British economy and exchange rates revealed that there were the major causes of contagion in the Nigerian stock market. Nigerian economy is susceptible to the dynamics of fluctuation arising from the British and Chinese currency exchange. To hedge against contagion effects, adequate trade balance must be pursued between Nigeria and Britain while focusing on/taking advantage of the openness of trade with the Chinese economy, as their market seems fairly stable compared to the British economy.

References

  1. Agyei-Ampomah, S. (2011). Stock market integration in Africa. Managerial Finance, 37 (3), 242–256

  2. Ahlgren, N. & Antell, J. (2010). Stock market linkages and financial contagion: A cobreaking analysis. The Quarterly Review of Economics and Finance, 50(2), 157-166.

  3. Aloui, R., Aïssa, M. S. B. & Nguyen, D. K. (2011). Global financial crisis, extreme interdependences, and contagion effects: The role of economic structure? Journal of Banking & Finance, 35(1), 130-141.

  4. Awokuse, T. O., Chopra, A. & Bessler, D. A. (2009). Structural change and international stock market interdependence: Evidence from Asian emerging markets. Economic Modelling, 26(3), 549-559.

  5. Bakar, N. A., & Masih, A. M. M. (2014). The dynamic linkages between Islamic index and the major stock markets: New Evidence from Wavelet time-scale decomposition Analysis.

  6. Chiang, T.C., Jeon, B.N. & Li, H. (2007). Dynamic correlation analysis of financial contagion: Evidence from Asian markets. Journal of International Money and Finance, 26, 1206-1228.

  7. Dimitriou, D., Kenourgios, D. & Simos, T. (2013). Global financial crisis and emerging stock market contagion: A multivariate FIAPARCH–DCC approach. International Review of Financial Analysis, 30, 46-56.

  8. Ding, L. & Pu, X. (2012). Market linkage and information spillover: Evidence from pre-crisis, crisis, and recovery periods. Journal of Economics and Business, 64(2), 145-159.

  9. Dooley, M. & Hutchison, M. (2009). Transmission of the US subprime crisis to emerging markets: Evidence on the decoupling-recoupling hypothesis. Journal of International Money and Finance, 28(8), 1331-1349.

  10. Dornbusch, R., Park, Y. C. & Claessens, S. (2000). Contagion: Understanding how it spreads. The World Bank Research Observer, 15(2), 177-197.

  11. Errunza, V. & Losq, E. (1985). International asset pricing under mild segmentation: Theory and test. Journal of Finance, 40, 105-124.

  12. Forbes, K. & Rigobon, R. (2002). No contagion, only interdependence: Measuring stock market co-movement. The Journal of Finance, 57, 2223-61.

  13. Horvath, R. & Petrovski, D. (2013). International stock market integration: Central and South Eastern Europe compared. Economic Systems, 37(1), 81-91.

  14. Kaminsky, G. L., Reinhart, C. M. & Vegh, C. A. (2003). The unholy trinity of financial contagion. Retrieved from:  http://www.nber.org/papers/w10061.

  15. Kenourgios, D. & Padhi, P. (2012). Emerging markets and financial crises: Regional, global or isolated shocks? Journal of Multinational Financial Management, 22(1), 24-38.

  16. Kenourgios, D., Samitas, A. & Paltalidis, N. (2011). Financial crises and stock market contagion in a multivariate time-varying asymmetric framework. Journal of International Financial Markets, Institutions & Money, 21, 92-106.

  17. Johansen, S. & Juselius, K. (1990). Maximum likelihood estimation and inference on cointegration with applications to the demand for money. Oxford Bulletin of Economics and Statistics, 52,169-210.

  18. Loh, L. (2013). Co-movement of Asia-Pacific with European and US stock market returns: A cross-time-frequency analysis. Research in International Business and Finance, 29, 1-13

  19. Madaleno, M. & Pinho, C. (2012). International stock market indices co-movements: a new look. International Journal of Finance & Economics,17(1), 89-102.
    Markowitz, H. & Selection, P. (1959). Efficient diversification of investments. John Wiley and Sons, 12, 26-31.

  20. Menezes, R., Dionísio, A. & Hassanic, H. (2010). On the globalization of stock markets: An application of VECM, SSA technique and mutual information to the G7?  Portugal: University of Evora, CEFAGE-UE.

  21. Masih, R. & Masih, M. M. (2002). Long and short term dynamic causal transmission amongst international stock markets. Journal of International Money and Finance, 3(15), 198-221.

  22. Mobolaji, A. (2008). The global financial meltdown: impact on Nigeria’s capital market and foreign reserve. Retrieved from: www.nigeriavillagesquare.com/article/mobolaji-aloko/the-global-financial-meltdown-impact-onnigerias-capital-market

  23. Ncube, M., Ndou, E. & Gumata, N. (2012). How are the US financial shocks transmitted into South Africa? Structural VAR evidence, Working Paper Series. African Development Bank Group, 157, October.

  24. Neaime, S. (2012). The global financial crisis, financial linkages and correlations in returns and volatilities in emerging MENA stock markets. Emerging Markets Review, 13(3), 268–282.

  25. Obstfeld, M. (1995). Risk-taking, global diversification. Growth American Economic Review, 84, 1310–1329.

  26. Olowe, R. A. (2009). Stock return, volatility And the global financial crisis on the Nigerian Capital Market Performance: An empirical investigation (2000-2008). European Journal of Humanities and Social Sciences, 16(1), 142-172.

  27. Ozdemir, Z. A. & Cakan, E. (2007). Non-linear dynamic linkages in the international stock markets. Statistical Mechanics and its Applications, 377, 173–180.

  28. Rezayat, F. & Yavas, B. F. (2006). International portfolio diversification: A study of linkages among the US, European and Japanese equity markets. Journal of Multinational Financial Management, 16(4), 440-458.

  29. Riman, H.B., Offiong, A. I. & Ibi, E. E. (2014). Effect of volatility transmission on domestic stock returns: Evidence from Nigeria. Journal of International Business and Economics, 2(3), 189-219.

  30. Samarakoon, L. P. (2011). Stock market interdependence, contagion, and the U.S. financial crisis: The case of emerging and frontier markets. Journal of International Financial Markets, Institutions & Money, 21, 724-742.

  31. Tella, S. (2009). Global economic crisis and stock market efficiency: Evidence from selected African countries. Review of Social, Economic and Administrative Studies, 25(1), 139-169.

  32. Xu, H. & Hamori, S. (2012). Dynamic linkages of stock prices between the BRICs and the United States: Effects of the 2008–09 financial crisis. Journal of Asian Economics, 23(4), 344-352.

  33. Yakubu, Z. & Akerele, A. O. (2012). An analysis of the impact of global financial crisis on the Nigerian Stock Exchange. Current Research Journal of Social Science, 4(6), 396-399.

  34. Yartey, C. A. & Adjasi, C. K. (2007). „Stock Market development in sub-Saharan Africa. Critical issues and challenges. IMF Working paper. No. WP/07/209

  35. Yiu, M. S., Alex, H. W. & Choi, D. F. (2010). Dynamic correlation analysis of financial contagion in Asian markets in global financial turmoil. Applied Financial Economics, 20, 345-354.

bottom of page