THE EFFECT OF COVID-19 ON THE PERFORMANCE OF THE NIGERIAN STOCK MARKET OVER THE PERIOD

CHAPTER ONE

INRODUCTION

1.1 Background of the Study

The late-2019 COVID-19 pandemic outbreak sparked global health emergency that caused financial market and economic disruption across the globe. Nigeria’s stock market saw unheard-of volatility as the virus spread quickly and containment measures were put in place, raising questions about the stability of the market and its long-term effects. To successfully manage the uncertainty of these difficult times, researchers, policy makers, and investors must understand how COVID-19 has affected the Nigerian stock market. According to Adrian and Natalucci (2020), COVID-19 pandemic has led to an unprecedented crisis in human health. The necessary measures to contain the virus triggered an economic downturn. The financial system has already changed significantly, which could result in global financial stability. Investor sentiment has stabilized in recent weeks, actions aimed at containing the fallout from the pandemic. Emerging markets are at risk of bearing the most massive burden, as so often happens in times of financial distress. The Nigerian stock market is affected negatively since the outbreak of the virus. The Nigerian stock exchange market lost N2.3 Trillion within three weeks after the Nigerian first case – an 18% decline (“The Impact of COVID-19”, 2020). Uncertainty is a major factor for the shock in the stock market which has implications for the economy.

The objective of the well-regulated stock market is to facilitate the exchange of highly liquid and insolvent (possible) investors while also supporting the expansion and development of a nation’s economy. The common belief is that information is essential to the success of the stock market. Since the stock market is capable of establishing or redefining its values consistent with efficient market hypothesis, it is neither immune to nor insulated from the advent of information from multiple sources (Gerding, 2005; Sun and He 2012; Kowalewski and Spiewanowski, 2020). Major events that impact stock market returns include, but are not limited to, sports, news, environmental concerns, political shifts, epidemic outbreaks, and disasters (Al Awadhi, Al-saifi, and Alhamadi, 2020). Despite the substantial attention given to the global impact of COVID-19 on financial markets, there is a scarcity of comprehensive study focusing on the Nigerian stock market. The unique characteristics of the Nigeria economy, coupled with its vulnerability to extend stocks, warrant an in-depth examination of how the pandemic has affected the stock market’s performance. No doubt, the financial market which the stock market falls under its umbrella plays a part in promoting economic growth. This is achieved by attracting investors through the supply of financial products to individuals and firms (Caporal, Howells, and Soliman 2004). According to Oladapo (2017) the Nigerian stock market has advanced over time through trading volumes, turnover, number of stock exchanges and other financial intermediaries, the number of listed stocks, investor population, market capitalization, and stock price indices. However, Habiba and Waliu (2020) observed that in spite the committed efforts to propel the Nigerian economy through long-term capital market instruments, global shocks such as the subprime mortgage global financial crisis posed a threat to the market.

Corona-virus, which was first reported in December 2019, in Wuhan China, quickly escalated into a public health emergency and was declared a pandemic by the World Health Organization (WHO) on March 11, 2020 Daun and Zhu (2020). Virtually all the sectors of the world economy have been affected by the outbreak of the disease while countries have used various measures including lockdowns to contain the spread of the various. Several sectors, such as oil and gas, aviation, education, health, manufacturing, and financial markets have been hit by this outbreak. International monetary fund (IMF) noted that the economy of the world was witnessing its worst economic downturn since the great depression with emerging markets in Africa and others at high risk (Eric, 2020; Ozili and Arun, 2020). The stock exchange is an important economic institution that helps both the investors and the companies for mutual benefits. From the investors view, the study will motivate individuals in the event of related pandemic, to diversify their portfolio among the sectors of the market without possibly pulling out their fund through the secondary market. Sequel to this, investors’ confidence is renewed, thereby providing the required funds for the industries. The study provides the policymakers with the opportunity of acquiring knowledge on the sectors which are mostly hit by the pandemic and possibly come up with result-based policies that will provide succor to the sectors.

1.2. Statement of the Problem

The COVID-19 pandemic has had a significant impact on the global economy, including the Nigerian economy. The Nigerian stock market, which is a key indicator of the country’s economic performance, has also been affected by the pandemic. However, the extent to which COVID-19 has impacted the performance of the Nigerian Stock market is not well understood. Specifically, the problem this study seeks to address is:

How has the COVID-19 pandemic affected the performance of the Nigerian stock market in terms of All Share Index, trading volume, and market capitalization?
What are the key factors that have influenced the performance of the Nigerian stock market during the COVID-19 pandemic?
What are the implications of the COVID-19 pandemic for investors, policymakers, and other stakeholders in the Nigerian stock market?

This study therefore seeks to address the effect of COVID-19 pandemic on the performance of the Nigerian stock market with force on understanding the extent of market volatility, the relationship between Nigeria’s GDP growths, Exchange rate, COVID-19 cases (infection rate).

1.3. Objective of the Study

The major objective of this study is to determine the effect of COVID-19 on the performance of the Nigerian stock market. Other objectives are stated below.

To examine the relationship between Nigeria’s Exchange rate and Nigerian stock Exchange all share index (NSEASI) during the COVID-19 period.
To examine the relationship between Nigeria’s GDP growth and Nigerian stock Exchange all share index (NSEASI) during the COVID-19 Period.
To assess how COVID-19 reported cases (infection rate) influenced the volatility in the Nigerian stock Exchange all share index (NSEASI) during the COVID-19 period.

1.4. Research Questions

The following research questions will be answered in this study

To what extent does GDP impact the Nigerian stock Exchange All share index (NSEASI) during the COVID-19 pandemic period?
To what magnitude does the Exchange rate impact the Nigerian stock Exchange All share index (NSEASI) during COVID-19 pandemic period?
To what extent does the number COVID-19 reported cases impact the Nigerian stock Exchange All share index (NSEASI) during COVID-19 Pandemic period?

1.5. Research Hypotheses

The following hypotheses stated in the null form will be tested in this study.

H01: There is no significant relationship between Exchange rate and the Nigerian stock Exchange all share index (NSEASI) during the COVID-19 period.

H02: Nigeria’s GDP growth does not have a significant impact on the Nigerian stock Exchange all share index (NSEASI) during the COVID-19 period.

H03: COVID-19 cases (infection rate) did not contribute to the volatility of the Nigerian stock Exchange all share index (NSEASI) during the COVID-19 period.

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