Financial Sector Bubbles in the Nigerian Exchange Group
Abstract
This study investigated the existence of financial sectoral bubbles in the Nigeria Exchange Group using monthly data over the period 2008:M01 – 2023:M12. The study specifically examines the stock returns of four different NGX indices, namely NGX_ASEM, NGX Pension, NGX Banking, and NGX Insurance to detect the presence of bubbles. This is associated with the motivation to verify if any of these specified sectors are resilient within the Nigerian Exchange Group in relation to the contagion impact resulting from the Global Financial Crisis of 2007-2008, the bubble of 2012-2014, and April 2017 as specified by Central Bank of Nigeria. Data utilized in the study were sourced from the various issues of Central Bank of Nigeria, Nigeria Bureau of Statistics, and the Nigerian Exchange Group statistical bulletins. To analyse the data, the study employed the descriptive statistics and the generalized backwards supremum augmented Dickey-Fuller (BSADF) date-stamping techniques at the 95% confidence interval. The result of the study showed the presence of multiple bubbles in the various indices: NGX Pension, NGX Banking, NGX ASEM, and NGX insurance. The study concluded that that there is presence of multiple bubbles in all the selected sectors of the Nigerian Exchange Group. Among others, the study recommended that the Securities and Exchange Commission of Nigeria should strengthen its regulatory oversight responsibility. The enhancement of the authority of financial regulators to oversee and regulate speculative behaviours that have the potential to result in market bubbles. Enforcing more stringent restrictions and enhancing transparency might effectively mitigate the occurrence of excessive risk-taking.
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