The Impact of Terrorism on Equity Returns: Evidence from the Nigerian Stock Market

Keywords: Terrorism , Equity returns , Institutional structures , System-GMM , Nigeria


  • Hassan O. Ozekhome, Affiliation: Department of Economics and Statistics, University of Benin, P.M.B 1154, Benin City, Nigeria.
Pages:  26 : 34

This paper empirically examines the impact of terrorism on stock market returns in Nigeria. This is examined over the period, 1997-2015. Employing a dynamic system-GMM estimation technique, the findings show that terrorism has a significant negative effect on equity returns in Nigeria. In particular, the results, using Nigerian data, show that terrorism has a destabilizing effect on stock market performance, and hence, equity returns. The other variables- openness of the economy to financial flows has a positive and significant effect on stock market returns. Government effectiveness combined with other institutional variables to measure institutional quality and the infrastructure variables have positive but weak impacts on stock market performance in Nigeria perceivably due to the weak institutional capacity and infrastructure development in Nigeria. Inflation rate (a measure of macroeconomic policy environment) on the other hand is found to have a destabilizing effect on equity returns in Nigeria. We recommend amongst others, sound institutional framework with the capacity to restrain terrorism and other forms of insurgencies and violent conflicts, open investment policies, and coherent macroeconomic policies in order to enhance stock market performance in Nigeria.

JEL classification: