TESTING FOR MULTIPLE BUBBLE EPISODES IN NIGERIAN STOCK EXCHANGE MARKET
1Jamilu Iliyasu,2Aliyu Rafindadi Sanusi,& 3Dahiru Suleiman
1Department of Economics, Ahmadu Bello University, Business School, Zaria.
2Department of Economics, Ahmadu Bello University, Business School, Zaria.
3Department of Economics, Ahmadu Bello University, Business School, Zaria.
This paper sets out to test for the existence of asset price bubbles in Nigerian Stock Exchange (NSE) to provide empirical evidence, within multiple bubble context, to the claim by the Monetary Policy Committee of Central Bank of Nigeria (CBN) in July 2017 of a “seeming bubble” as well as the Garba’s (2017) argument of “occurrence of three bubble episodes since 2006”. To achieve this objective, this paper employed monthly data on the All-Share Index of the Nigerian Stock Exchange (NSE-ASI) from 1985 to 2018 and the Consumer Price Index (CPI) from 1995 to 2018. The results obtained from the Generalised Supremum Augmented Dickey-Fuller (GSADF) and Backward Supremum Augmented Dickey-Fuller (BSADF) tests revealed evidence of the occurrence of two bubble episodes in nominal ASI and three episodes in real ASI. Comparing the empirically identified episodes from the BSADF tests suggests that only one out of the three posited by Garba (2017) was indeed an episode of a bubble. Further analyses revealed that, even within a multiple bubble context, the Monetary Policy Committee’s remark of “seeming bubble” was not supported empirically. Based on the above results, the primary conclusion of this paper is that the remark and two out of the three claims were not empirically supported. It is, therefore, recommended that CBN should imbibe the use of modern econometrics techniques of bubbles detection and monitoring on its NSE surveillance to avoid sending false alarm (signal) on price movement and to adequately conduct bubble diagnostic check on the NSE-ASI before communicating its views to the market.
Key Words: Nigerian Stock Exchange, Generalised Supremum Augmented Dickey-Fuller, Central Bank of Nigeria, All-Share Index, Asset Price Bubbles