Challenges in the Era of Globalization - iaabd

Proceedings of the 12th Annual Conference © 2011 IAABD
TABLE 1: PAIRWISE CORRELATION MATRIX
NSE DOW FTSE NYSE S&P TSX CAC DAX
NSE 1 0.729141 0.516214 0.676697 0.728659 0.534788 0.734965
DOW 0.729141 1 0.943567 0.987028 0.957019 0.926031 0.946969
FTSE 0.516214 0.943567 1 0.972595 0.894174 0.973716 0.908977
NYSE 0.676697 0.987028 0.972595 1 0.950421 0.959228 0.951625
S&P TSX 0.728659 0.957019 0.894174 0.950421 1 0.839921 0.931327
CAC 0.534788 0.926031 0.973716 0.959228 0.839921 1 0.882783
DAX 0.734965 0.946969 0.908977 0.951625 0.931327 0.882783 1
Source: Authors’ computation
GMM ESTIMATION
SE = 6.10 + 29.76DOW + 71.38FTSE + 10.20NYSE + 3.43S&PTSX + 20.01CAC + 11.92DAX
(5.94 9.03 18.78 4.04 2.54 6.25 9.37)
{0.00 0.00 0.00 0.00 0.01 0.00 0.00}
R-squared = 0.79 Adjusted R-squared = 0.79 J-statistic = 0.02
Instrument list: NSEt-1, DOW t-1, FTSE t-1, NYSE t-1, S&PTSX t-1, CAC t-1, DAX t-1.
In addition, we use the Generalized Method of Moments (GMM) estimator to establish the relationship
between the Nigerian capital market (NSE) and the stock exchanges of 5 major developed economies of
USA (DOW and NYSE), UK (FTSE), Canada (S&PTSX), France (CAC) and Germany (DAX). The
results presented above indicate that all the bourses of the five advanced economy positively and
significantly influenced the NSE during the period under consideration. This implies that they move in
the same direction and shocks in these countries’ capital market were indeed transmitted to Nigeria. The
R 2 shows that about 79 percent of the variability in NSE can be attributed to the variations in the indices
of these five advanced nations.
Conclusions
The recent financial crisis undoubtedly affects both developed countries as well as emerging and
developing economies in varying degrees. This paper examines the impact of the global financial crisis on
the Nigerian capital market. Towards achieving the objective of this paper, we employ Correlation
Analysis and the Generalized Method of Moments (GMM), We find that the NSE is positively and highly
correlated with the indices of these countries although the degree of correlation is highest with the
German stock market, followed by that of USA (Dow Jones) and the Canadian stock market. The NSE is
however less correlated with those of the United Kingdom and the French bourses. Moreover, the results
of the GMM indicate that all the bourses of the five advanced economy positively and significantly
influenced the NSE during the period under consideration. This implies that they move in the same
direction and shocks in these countries’ capital market were indeed transmitted to Nigeria through the
NSE.
References
Atish R. Ghosh, Marcos Chamon, Christopher Crowe, Jun I. Kim, and Jonathan D. Ostry (2009): “Coping
with the Crisis: Policy Options for Emerging Market Countries”, IMF Staff Position Note, SPN/09/08,
April 23.
Balakrishnan, Ravi; Stephan Danninger, Selim Elekdag, and Irina Tytell (2009):“The Transmission of
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