Financial crisis and contagion have been established in the literature on finance and business to be easily
transmitted from one market to the other when there is strong cross-market linkages due to globalization.
Following several major financial crises, not the least, the 2008 – 2009 which emanated from the U.S.
subprime housing crisis, this study sought to provide evidence on the level of correlation between the U.S.,
United Kingdom and Japanese markets on one hand and the Nigerian stock market on the other whether
their linkages are cases of mere interdependence or pure contagion.
In order to establish this, this study employed the restrictive Constant Correlation (CCC-GARCH) and the
Dynamic Conditional Correlation (DCC-GARCH), the simple linear regression technique, among others,
to test whether the relationships between these markets differ remarkably in the post-crisis period from the
The results indicate that the CCC-GARCH and DCC-GARCH terms for some of the stock returns are
statistically significant within the 1% and 10% conventional significance levels. Overall, this indicates that
during the 2008 - 2009 period, the crisis influenced the conditional correlation co-efficients between the
three major markets and Nigeria; but while the relationship between the U.S. and Nigerian markets was a
case of pure contagion, in addition to persistence of volatility in the latter, this was not the case with the
other pairs in the analysis. This result was equally substantiated by the correlation test result which
indicated a pure contagion between the U.S. and Nigerian stock markets as evident from the absolute t =
- 4.750 or - 3.923 (/t/ > 2.576 Two tail test) for adjusted and unadjusted correlations respectively.
Based on the findings, this study concluded that there was a case of pure contagion between the U.S. and
the Nigerian stock market but not with the other pairs in the analysis whose linkages were found to be mere
interdependence. By implication this validates the veracity of findings in some earlier studies that financial
crisis can be transmitted, however, not all such cases were pure contagion as some were mere