How financial liberalization impacts stock market volatility in Africa: evidence from Nigeria


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Understanding the impact of financial liberalization on stock market is important for decision making by investors. The neo-classical economists believe that financial liberalization reduces stock market volatility while the post-Keynesian economists argue that financial liberalization increases volatility of the stock market. This study investigates the effect of financial liberalization on the volatility of an emerging stock market in Africa, with particular focus on the Nigerian stock market. The estimation results reveal that financial liberalization has a significant positive impact on return volatility, thus indicating that it increases stock market volatility. Also, the study finds no evidence of asymmetry in the stock market.

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    • Figure 1. Trend of annual growth rate of NSE capitalization (1985–2015)
    • Figure 2. Combined graph of ASI and returns (January 1985 – September 2016)
    • Figure 3. Conditional variance graph
    • Figure 4. Conditional standard deviation graph
    • Table 1. Descriptive statistics
    • Table 2. ARCH-LM test
    • Table 3. GARCH models estimation results