Introduction
The global financial crisis is a world-wide financial and business situation that is characterized by sudden sustained and alarming credit squeeze, tumbling stock market prices, shrinking demand, substantial job losses and rising prices and interest rates. According to Osaze (2009), global financial crisis is the continuous and dramatic drop in all economic indices over a relatively short period of time leading to corporate failures especially failures of the financial markets which provide the lubricants that oil the economy. There is no doubt that stock market all over the world are somewhat interrelated in that developments especially in major markets throughout the world, often have implications for and often reverberates in others (Agbonifoh and Evbayiro-Osagie, 2011).
One may wonder why shocks in European and American stock markets have impact on the Nigerian stock market. This is due to contagion relations. According to Tella (2009), contagion issues are being concerned with the transmission of financial variable movement from one country to another. Dornbusch, Park and Claessens (2000) describe contagion, as a significant increase in cross-market linkages after a stock to an individual country or a group of countries. According to Tella (2009), the increasing global integration in the financial market, including the capital market is providing some ground for the suspicion that stock markets in both developed and developing countries influence each other in both positive and negative ways.
Stock markets are sensitive to national and international events and react immediately. The Nigerian stock exchange (NSE) witnessed unprecedented growth in total market capitalization and value of shares traded between 2004 up to the second quarter of 2008. Immediately the crisis was pronounced in July 2008 in USA, the Nigerian stock market started experiencing serious downturn activities. It was also observed that investors were pulling out their resources which made the stock price to generally go down. Both developed and developing economies faced negative repercussions of the financial crisis and experienced adverse impact on their economies via the channel of finance and trade. Net capital inflows shrunk drastically from the beginning of the crisis.
This crisis badly affected foreign direct investment, portfolio investment and exports of developing nations (Igbal, 2010). The ripple effects of the global financial crisis seem to have had a dramatic negative effect on the Nigerian stock exchange. Market capitalization has been reduced from over N10.18 trillion to N5.2 trillion and a market index from 5799 points to 22000 points by October 2009 and a flight of foreign portfolio investment; stock and shares were no longer collaterisable (Osaze, 2009). Yakubu and Akerela (2012) also conducted a study on the analysis of the impact of global financial crisis on the Nigerian stock exchange for the period of 2008 to 2011. Using the ordinary least squares method of analysis, it was found that the global financial crisis has no significant impact on the Nigerian stock exchange.
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