GLOBAL FINANCIAL INTEGRATION AND VOLATILITY TRANSMISSION TO NIGERIA: EVIDENCE FROM THE US, UK, AND CHINESE EQUITY MARKETS

This study investigates the volatility transmission from major global equity markets to Nigeria, analyzing the dynamics of financial integration and shock spillovers. Utilizing daily data from January 2010 to December 2023, the research employs a multivariate BEKK-GARCH model to quantify direct volatility spillovers from the US (S&P 500), UK (FTSE 100), and China (Shanghai Composite) to the Nigerian Stock Exchange (NGX All-Share Index). Complementarily, a Dynamic Conditional Correlation (DCC-GARCH) model traces the evolution of market integration over time, with particular focus on crisis periods including the 2014-16 oil crash, the COVID-19 pandemic, and the 2022 geopolitical crisis. The findings reveal a hierarchical and asymmetric spillover structure: the US is the dominant and persistent source of volatility transmission to Nigeria, followed by a weaker but significant effect from the UK. Direct financial market spillovers from China are statistically insignificant, suggesting its influence operates indirectly through commodity price channels. The DCC analysis demonstrates that Nigeria’s correlation with global markets exhibits a secular increasing trend but experiences dramatic crisis-contingent spikes, with the Nigeria-US correlation surging to 0.67 during the March 2020 panic. This indicates that financial integration deepens diversification benefits during stable periods but evaporates during systemic global stress, exposing Nigeria to heightened contagion risk. The study concludes that Nigeria’s equity market is asymmetrically integrated into the global financial system, with volatility predominantly imported from core markets, a vulnerability that intensifies during crises. The results provide critical insights for Nigerian policymakers in designing macroprudential safeguards and for international investors in managing frontier market portfolio risk.