STOCK MARKETS INTEGRATION: AN ANALYSIS OF RETURN AND VOLATILITY TRANSMISSION BETWEEN NIGERIA DEVELOPED MARKETS

STOCK MARKETS
INTEGRATION: AN ANALYSIS OF
RETURN AND VOLATILITY
TRANSMISSION BETWEEN NIGERIA
DEVELOPED MARKETS
Udemezue Ndubisi
Department of Accountancy/ Banking &
Finance, Alex Ekwueme Federal University,
NdufuAlike, Ebonyi State, Nigeria
ABSTRACT
Stock market integration and consequent
return and volatility spillover dynamics remain
a crucial and topical issue in finance,
principally due to its practical implications for
international investment strategies. When two
or more markets are integrated, they tend to
share certain common trends in indices. This is
mostly possible if there are shared underlying
structural
endowments
driving
the
markets.This paper aims to study the return
and volatility transmission effects between
Nigeria and developed economies. We use
USA, Britain and Japan to represent developed
markets in three different geographical
regions. We will employ ex-post facto research
design, and source our data from officially
recognized secondary database. The sample
period will be from 2000 and 2018. The choice
of 2000 is because it was the immediate year
following the birth of new democracy in
Nigeria (civilian Government emerged in May,
1999); and more important, the year marks
the beginning of massive revolution in
technology with its intense influence on
liberalization and globalization (21 st century
Accounting and Finance Research Association
technology). Preliminary tests such as unit
roots, descriptive tests, etc. will be conducted.
The study will make use of Vector
Autoregressive and GARCH–BEKK model to
capture comovement and transmission. By the
time the study is concluded, we expect to find
transmission of returns and volatility between
Nigeria and these countries given the fact
these markets have, in varying degrees,
implemented reforms germane for market
integration. The work will be useful to
investors, international institutions and the
government who will come to understand the
connectedness and correlation between
Nigeria and the other markets. Consequently,
investors will be able to apply optimal
portfolio diversification and hedging while the
government will be guided to develop
appropriate policies to ensure financial
stability. In addition, it would complement the
emerging body of existing literature by
examining how Nigeria stock market is
integrated with the rest of the world markets.
Keywords: stock markets, returns and
volatility, transmission, vector autoregressive,
Garch-Bekk model

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