Financial Contagion and Its Impact on the Nigerian Stock Market
Journal Title: Journal of Economics and Business - Year 2018, Vol 1, Issue 3
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.
Authors and Affiliations
Amenawo Offoing, Hodo Riman, James Godwin
Keywords
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