Stock Market Linkage, Financial Contagion and Assets Price Movements: Evidence from Nigerian Stock Exchange

  • Shafiu Ibrahim ABDULLAHI Media Trust Abuja, Nigeria


This paper studied portfolio-investments diversification, stock market linkage and negative integration in Nigerian stock exchange. Like many other stock exchanges around the world, Nigerian stock exchange was devastated by the global financial crisis of 2008. That single crisis has changed the mode of operations of the market by affecting market capitalisation, efficiency and profit. Ten stock market indices are involved in this study, where the aim is to find out how Nigerian stock markets relate with counterparts around the world. The study covered the period from September 2009 to August 2016. The study used Generalised Impulse response function, Engel-Granger cointegration and Johansen cointegration analysis to measure integration between Nigerian stock exchange and selection of nine stock exchanges around the world. The results from cointegration analysis show lack of cointegration. This means despite globalisation Nigerian stock exchange is less integrated with the rest of the stock markets providing ample opportunities for portfolio diversification. This also further support previous studies that found out that developed countries stock markets tend to correlate with their developed countries counterparts than emerging and developing markets.


[1] Abraham, T. W. 2015. Regional Financial Integration: Evidence from Stock Markets in the West African Monetary Zone. Available at
[2] Agyei-Ampomah, S. 2011. Stock market integration in Africa, Managerial Finance, 37(3): 242 – 256.
[3] Alagidede, P. 2008. African Stock Market Integration: Implications for Portfolio Diversification and International Risk Sharing, Proceedings of the African Economic Conference.
[4] Arouri, M. H. and Jawadi, F. 2009. Stock Market Integration in Emerging Countries: Further Evidence from the Philippines and Mexico. Downloaded from Research gate on 03/12/2016.
[5] Assidenou, K. E. 2011. Cointegration of Major Stock Market Indices during the 2008 Global Financial Distress. International Journal of Economics and Finance, 3(2): 212-222.
[6] Awokuse, T.O., Chopra, A., and Bessler, D. A. 2008. Structural Change and International Stock Market Interdependence: Evidence from Asian Emerging Markets. Revision for Economic Modelling, September.
[7] Bae, K., Karolyi, G. A., and Stulz, R. M. 2003. A new approach to Measuring Financial Contagion. The Review of Financial Studies, 16(3): 717-763.
[8] Bartram, S. M., and Dufey, G. 2001. International Portfolio Investment: Theory, Evidence, and Institutional Framework. Social Science Research Network, Paper No. SSRN-id270196.
[9] Bekaert, G. and Harvey, C. R. 2000. Foreign Speculators and Emerging Equity Markets. The Journal of Finance, 55(2): 565-613.
[10] Bekaert, G., Harvey, C. R., and Lundblad, C. T. 2003. Equity Market Liberalization in Emerging Markets. Journal of Financial Research, 26(3): 275–299.
[11] Bekaert, G., Harvey, C. R., and Ng, A. 2005. Market Integration and Contagion. Journal of Business, 78(1): 39-69.
[12] Butler, K. C., and Joaquin, D. C. 2001. Are the Gains from International Portfolio Diversification Exaggerated? The Influence of Downside Risk in Bear Markets. Social Science Research Network, Paper No. SSRN- id221992.
[13] Cakan, E., Doytch, N. and Upadhyaya, K. P. 2015. Does U.S. macroeconomic news make emerging financial markets riskier?, Borsa _Istanbul Review, 15(1): 37-43.
[14] Chelley-Steeley, P. L. 2005. Modelling equity market integration using smooth transition analysis: A study of Eastern European stock markets. Journal of International Money and Finance, 24: 818-831.
[15] Click, R. and Plummer, M. G. 2003. Stock Market Integration in ASEAN after the Financial Crisis. The International Centre for the Study of East Asian Development, Kitakyushu, Working Paper Series 2003-06.
[16] Derrabi, M. and Leseure, M. 2002. Global Asset Allocation: Risk and Return on Emerging Stock Markets, School of Business Administration, Al Akhawayn University in Ifrane, Morocco.
[17] Dimitriou, D. and Kenourgios, D. 2012. Opportunities for international portfolio diversification in the Balkans' markets. MPRA Paper No. 37479. Available at:
[18] Duce, M. and Espana, B. 2003. Definitions of Foreign Direct Investment (FDI): a methodological note, a note prepared as background material for the BIS Meeting of the CGFS Working Group on FDI in the financial sector.
[19] Ghini, A, and Saidi, Y. 2015. Financial market contagion during the global financial crisis: evidence from the Moroccan stock market. International Journal of Financial Markets and Derivatives, 4(1): 345-3
[20] Goldsteina, I. and Pauzner, A. 2004. Contagion of self-fulfilling financial crises due to diversification of investment portfolios. Journal of Economic Theory, 119: 151–183.
[21] Gregory, A. W. and Hansen, B. E. 1996. 'Residual-Based Tests for Cointegration in Models with Regime Shifts'. Journal of Econometrics, 70: 99-126.
[22] Harvey, C. R. 1995. Predictable risks and returns in emerging markets, NBER working paper series, No. 4621
[23] International Monetary Fund (IMF, 2015) statistic department, Course on External Sector Statistics Nay Pyi Taw, Myanmar January 19-23, 2015.
[24] Irving, J. 2005. Regional Integration of Stock Exchanges in Eastern and Southern Africa: Progress and Prospects. IMF working paper, WP/05/122.
[25] Jawadi, F. and Arouri, M. E. 2008. Are American and French Stock Markets Integrated? The International Journal of Business and Finance Research, 2(2): 23-45.
[26] Johansen, S. 1991. Estimation and Hypothesis testing of cointegration vector in Gaussian Vector Autoregressive Models, Econometrica, 59: 1551-1581.
[27] Johansen, S., and 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.
[28] Kapingura. F. M., Mishi, S., and Khumalo, S. 2014. Integration of the African Stock Markets to the Global Markets: Case Study of South Africa. Mediterranean Journal of Social Sciences MCSER, 5 (2): 619-628.
[29] Khan, T. A. 2011. Cointegration of International Stock Markets: An Investigation of Diversification Opportunities. Undergraduate Economic Review, 8(1), Article 7. Available at:
[30] Kimani, D., and Mutuku, C. 2013. Inflation dynamics on the overall stock market performance: The case of Nairobi Securities Exchange in Kenya. Economics and Finance Review, 2(11): 1-11.
[31] Marashdeh, H. 2005. Stock Market Integration in the MENA Region: An Application of the ARDL Bounds Testing Approach. University of Wollongong Economics Working Paper Series, WP 05-27.
[32] Moldovan, I. 2011. Stock Markets Correlation: before and during the Crisis Analysis. Theoretical and Applied Economics Volume 43 (8): 111-122.
[33] Oloko, T. F. 2016. Portfolio Diversification between Developed and less Developed Economies: The Case of US and UK Investors in Nigeria. Centre for the Study of the Economies of Africa, CSEA Working Paper WPS/16/02.
[34] Raj, J. and Dhal, S. 2008. Integration of India’s stock market with global and major regional markets. Bank for International Settlements Paper No. 42.
[35] Rehman, M. and Shah, S. M. 2016. Factors Influencing Co-movement of Diversified Portfolio between Pakistan and India. International Journal of Economics, Management and Accounting, 24(2): 189-207.
[36] Rejeb, A. B. and Boughrara, A. 2015. Financial integration in emerging market economies: Effects on volatility transmission and contagion. Borsa Istanbul Review, 15(3): 161-179.
[37] Richard, A. J. 1995. Comovements in national stock market returns: Evidence of predictability, but not cointegration. Journal of monetary Economics, 36: 631-654.
[38] Tabak, B. M. and Lima, E. J. 2002. Causality and Cointegration in Stock Markets: the Case of Latin America. Working Paper Series No 56, Central Bank of Brazil.
[39] Trivedi, J. and Birau, R. 2013. Analysis of international contagion in emerging stock markets in terms of global financial crisis. Advances in Accounting, Auditing and Risk Management, (12):12-6.
[40] Uyaebo, S. O., Atoi, V. N., and Usman, F. 2015. Nigeria Stock Market Volatility in Comparison with some Countries: Application of Asymmetric GARCH Models. CBN Journal of Applied Statistics, 6(2): 45-2.
[41] Wang, P. and Moore, T. 2008. Stock Market Integration for the Transition Economies: Time-Varying Conditional Correlation Approach. Available at:
How to Cite
ABDULLAHI, Shafiu Ibrahim. Stock Market Linkage, Financial Contagion and Assets Price Movements: Evidence from Nigerian Stock Exchange. Journal of Advanced Studies in Finance, [S.l.], v. 8, n. 2, p. 146-159, feb. 2018. ISSN 2068-8393. Available at: <>. Date accessed: 03 mar. 2024. doi:
Journal of Advanced Studies in Finance