An Analysis of the Impact of Global Financial Crisis on the Nigerian Stock Exchange

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An Analysis of the Impact of Global Financial Crisis on the Nigerian Stock Exchange



1.0        Introduction

1.1        Background to the study

1.2        Statement of problem

1.3        Purpose of the study

1.4        Research Questions

1.5        Significance of the study

1.6        Scope/Delimitation of the study

1.7        Limitation to the study

1.8        Definition of terms


2.0        Literature Review


3.0        Methodology

3.1      Research Design

3.2      Population of study

3.3      Sample and sampling techniques

3.4      Research instrument

3.5      Validity of the instrument

3.6      Administration of the instrument

3.7      Method of data analysis


4.0        Data Analysis and Interpretation

4.1        Presentation of Data

4.2        Analysis of data


5.0        Summary, Conclusion and Recommendations

5.1        Summary

5.2        Conclusion

5.3        Recommendation



Abstract: The objective of this study is to analyze the impact of the global financial crisis on the Nigerian Stock Exchange from 2008 to 2011. Market Capitalization is the proxy of the Nigerian Stock Exchange while Capital Inflow and Foreign Exchange Rate are the proxy of global financial crisis on Nigerian Stock Exchange. Using the ordinary least square it was found that the global financial crisis has no significant effect on the Nigerian Stock Exchange. This means policy of regulators had deepened the recession on the Nigerian Stock Exchange. The government is therefore advised to put up measures to stem up investors’ confidence and activities in the market so that it could contribute significantly to the Nigerian economy. Keywords: Capital inflow, foreign exchange rate, global credit market, housing market, market capitalization


Since after the great depression of the last century, the world economy has been facing financial crisis, the recent one started in the United State of America. In July 2007, global credit market came to a stand still due to the crisis in US mortgage industry which manifested itself better in the year 2008. US with an estimated GDP of $14 trillion contributes about 25% of world output and has the largest industrial complex, if it contracts by 1% this implies a direct output loss of approximately $14 billion which is equivalent to the GDP of Pakistan, the 47th largest economy in the world (Abdul, 2009). Sanda (2009) explains that the factor behind the global financial crisis was the slump in the US mortgage industry. In August 2007 when the US housing market began to show signs of distress, many house owners in America had been unable to service their mortgage loans, causing a wave of repossessions by mortgage institutions from the loan beneficiaries that defaulted on loan repayments. Another effect was the credit crunch, as many mortgage and financial institutions became unwilling to extend credit. Thus, the slump in the US housing market and the concomitant credit crunch sent shock waves to the rest of the American economy and through the contagion, to the rest of the world. This is not to suggest that the current global financial crisis was caused exclusively by the strains in the housing market in the United State of America and the growing imbalances. There are also many different views on the causes of the crisis, complex financial innovations that made concerted efforts to conceal default risks, weak oversight and regulatory functions and possibly sheer greed manifested blind pursuit of profit and utter disregard for the underlying risks. Some analysts have traced the cause of the global financial crisis to the regime of easy credit in the US which started during the period of Alan Greenspan; he was vehemently opposed to any regulation of financial instruments known as derivative. This action allowed huge amounts of easy credit backed money to be injected into the financial system and help create sustainable economic boom. However, as long as capital flows and credit expansion grew unchecked, lending expectedly spilt over from financing safe and productive investments to risky and speculative assets. Reckless financial innovation included leverage, short selling, unsecured credit systems and swaps. At first, it was argued that it has no effect in Nigeria’s capital market. But that initial response was, to put it mildly, naïve. The country’s dependence on the export sector is very significant: 99% of foreign earnings and 85% of local revenues are directly derived from activities related to export of a single commodity, which is at the center of the current financial crisis, oil. It is estimated that 58.4% of Nigeria’s export are US bound and up to 25% to the Europe zone. 67% of our non-oil exports go to Western Europe, 20% to Asia while ECOWAS accounted for only 11% in 2007. The stock of our foreign earning reserves is kept in European capitals markets where financial markets have tumbled and banks distressed. How can anyone think we are insulated? International financial crises which affect trade and investment flows are bound to impact on the domestic economy (Abdul, 2009).

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