Vulnerability of a developing stock market to openness: one-way return and volatility transmissions

Aminu Hassan, Masud Ibrahim, Ahmed Jinjiri Bala

Research output: Contribution to journalArticlepeer-review


Drawing from two independent literature sources on vulnerability and stock price volatility, we show that the high magnitude and persistence of stock return volatility evident in the Nigerian Exchange Group (NGX) are, at least in part, indications of vulnerability to openness, which paves the way for the transmission of external shocks. Using a uniquely modified set of bivariate asymmetric GARCH models, we investigate one-way return and volatility transmissions from the international Brent oil market, natural gas markets, carbon markets, and naira-dollar exchange market to the NGX. Firstly, we document direct and asymmetric return and volatility transmissions from the Brent oil market to the NGX, denoting the fragile sensitivity of the NGX to international oil price turbulence. Secondly, we find a direct volatility transmission from natural gas markets to the NGX, implying an increasing reliance on natural gas exports by the Nigerian government. Thirdly, we document an inverse volatility transmission from carbon markets to the NGX, indicating Nigeria's negative reaction, as a major oil and gas producer, to increasing global sustainable production activities. Fourthly, the insignificant effect of the naira-dollar official exchange rate on volatility in the NGX demonstrates the spurious impression that Nigeria's exertion of control over the exchange rate is shielding the economy. In sum, our results confirm that the openness of the NGX makes it vulnerable to external shock transmissions from related external markets subsisting outside Nigeria. Our results are robust to an alternative estimation procedure that employs a different measure of price volatility from the three external markets.
Original languageEnglish
Pages (from-to)(In-Press)
JournalInternational Review of Financial Analysis
Early online date11 Mar 2024
Publication statusE-pub ahead of print - 11 Mar 2024


  • Developing stock market
  • Return and volatility transmissions
  • Oil and gas markets
  • Carbon markets
  • Vulnerability to openness


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