A regime-switching skew-normal model of contagion in some selected stock markets

Abubakar Jamaladeen, David E. Omoregie, Samuel F. Onipede () and Nafiu A. Bashir
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Abubakar Jamaladeen: Central Bank of Nigeria
David E. Omoregie: Central Bank of Nigeria
Samuel F. Onipede: Central Bank of Nigeria
Nafiu A. Bashir: Central Bank of Nigeria

SN Business & Economics, 2022, vol. 2, issue 12, 1-20

Abstract: Abstract This study examined the contagion and structural break between Nigerian Stock Exchange Market (NSE) and some selected stock markets, namely: Ghana, South Africa (SA), Tunisia, and the United States. Two periods were considered: the crisis period (1st May 2016 to 31st December 2017) and the calm period (1st January 2018 to 31st December 2019). Following the work of (Chan, J., Fry-McKibbin, R. & Hsiao C. (2018). A Regime switching skew-normal model of contagion. Studies in Nonlinear Dynamics and Econometrics, Volume 23, Issue 1), the study used the Regime Switching Skew-Normal (RSSN) model which is capable of measuring contagion and structural breaks between markets. Our results indicated evidence of a structural break between the crisis and calm periods, which is a prerequisite for contagion. Furthermore, the study found a moderate contagion between Nigeria and SA stock markets but an absence of contagion between Nigeria and the remaining stock markets, suggesting capital flights from Nigeria to SA for safety during the 2016 economic recession. However, we were unable to find any evidence of capital reversal to Nigeria from SA during the calm period, implying an existence of an asymmetric relationship between Nigeria and South African stock markets. The absence of contagion between Nigeria and the selected African stock markets, suggests there is no significant economic cooperation and cross-border portfolio investment flow among the countries. This development further underpins the imperativeness of the full implementation of the African Continental Free Trade Agreement (AfCFTA), which encourages economic activities and investment flow on the continent.

Keywords: AfCFTA; African Stock Markets; Regime Switching Models; Bayesian Model; Contagion (search for similar items in EconPapers)
JEL-codes: F15 F36 G15 G17 R11 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1007/s43546-022-00357-5

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