Covid-19 Pandemic and Sectorial Stock Market Returns Volatility in Nigeria.

Abstract

Investors fled to safe havens like US Treasury bonds as a result of the Covid-19
pandemic outbreak, which caused major market indices in the Nigerian stock
market to crash. Barely three weeks after the first coronavirus infection was
confirmed and reported in Nigeria on February 28, 2020, stock market investors
lost nearly two trillion dollars. Thus, using a Generalized Autoregressive
Conditional Heteroscedasticity model, this paper investigates the impact of the
COVID-19 pandemic on sectorial stock prices in the Nigerian stock market,
concentrating on the leading sectoral indices of banking, consumer goods,
insurance, and oil and gas. Strong evidence of volatility clustering is shown by
the GARCH model's results, suggesting that internal shocks are what causes
volatility in the Nigerian stock market. Further findings indicated that the four
stock market indices had a negative coefficient of the COVID-19 variable. The
banking and oil and gas industries, on the other hand, had the largest size of the
COVID-19 variable, suggesting that these industries were the most affected by the
pandemic and that investing in them could either increase an investor's active risk
tolerance or their ability to construct a more aggressive portfolio. Conversely, the
industries with the lowest coefficients—consumer goods and insurance—indicate
that COVID-19 has less of an impact on stock market volatility. Since there was
volatility clustering for the majority of stock market indices following the Covid-
19 outbreak, the paper recommended that investors, portfolio and risk managers
adjust their value at risk estimates, capital, and take advanced measures to ensure
that their institutions and portfolios can bear the additional risk in high shock
periods. Ultimately, knowing the type and extent of market volatility might assist
decision-makers in implementing the appropriate intervention measures,
particularly for the most impacted businesses and sectors, to mitigate any
possible market explosion and economic consequences caused by the virus.