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Returns and Volatility Spillover between Nigeria and Selected Global Stock Markets: A Diebold-Yilmaz Approach

Author

Listed:
  • Tumala, Mohammed M.

    (Statistics Department, Central Bank of Nigeria)

  • Atoi, Ngozi V.

    (Statistics Department, Central Bank of Nigeria)

  • Karimo, Tari M.

    (Statistics Department, Central Bank of Nigeria)

Abstract

This study examines stock return and volatility spillovers between Nigeria and five global markets (China, Hong Kong, Japan, UK, and the US) from January 2000 to August 2021. The study adopts the Diebold-Yilmaz interconnectedness index and concludes that most of the returns generated in Nigeria are due to domestic shocks, implying that the country is less integrated. Also, larger proportion of risks in Nigeria are attributable to global shocks suggesting that the Nigerian stock market is vulnerable to international shocks. The study also showed that the global financial crisis (GFC) is associated with higher and intensified return and volatility spillovers among global markets. The study recommends that investors should consider assets in the Nigerian stock market in their portfolios to benefit from diversification. The study also advocates for policies to stabilize the domestic economy and build buffers to make the market resilient to global uncertainties. Spillover nei rendimenti e nella volatilità tra il mercato azionario della Nigeria ed altri mercati globali: un approccio Diebold-Yilmaz Questo articolo esamina gli spillover nei rendimenti e nella volatilità tra il mercato della Nigeria e cinque mercati azionari globali (Cina, Hong Kong, Giappone, Regno Unito e Usa) da gennaio 2000 ad agosto 2021. Lo studio applica l’indice di interconnessione di Diebold-Yilmaz e conclude che la maggior parte dei rendimenti generati in Nigeria sono dovuti a shock interni, da cui si deduce che il paese è poco integrato. Inoltre, gran parte del rischio in Nigeria è attribuibile a shock globali da cui si evince la sensibilità del mercato azionario nigeriano agli shock internazionali. Lo studio ha mostrato anche che la crisi finanziaria globale è associata a più alti e intensi spillover nei rendimenti e nella volatilità tra i mercati internazionali. Si consiglia agli investitori di inserire nel loro portfolio asset del mercato azionario nigeriano per differenziare gli investimenti. L’articolo inoltre raccomanda di applicare delle politiche per stabilizzare l’economia locale e rendere il mercato azionario resistente alle incertezze globali.

Suggested Citation

  • Tumala, Mohammed M. & Atoi, Ngozi V. & Karimo, Tari M., 2023. "Returns and Volatility Spillover between Nigeria and Selected Global Stock Markets: A Diebold-Yilmaz Approach," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 76(2), pages 173-208.
    • Handle: RePEc:ris:ecoint:0943
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    References listed on IDEAS

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    More about this item

    Keywords

    Diversification; Integration; International Financial Markets; Portfolio; Stock Returns; Spillovers; Volatility;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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