FINANCIAL ASSETS PERFORMANCE AND HERDING BEHAVIOUR IN NIGERIAN FINANCIAL MARKETS. A CROSS-SECTIONAL ABSOLUTE DEVIATION (CSAD) APPROACH

This study evaluates the effect of returns, volatility on herding behaviour in Nigerian financial market. Monthly data of stock, bond and treasury bills market prices from 2019 – 2025 are used with the aim of examining and comparing the performance of the assets’ returns and volatility and then the possible consequent cascading effects or herding behavior of investors across the markets. The major findings and consequent conclusions of this study are thus: Stock return is inversely correlated to Treasury bill return but directly correlated to bond return. Bonds and Treasury bills as expected are less volatile and their expected values are relatively fixed, while stocks are volatile and their expected values vary over time. Stock has the highest monthly rate of return followed by Treasury bills. The pattern of distribution of bond price/return is normal, but stock and Treasury bill return do not follow a normal distribution process. There is evidence that investors do not cascade or herd towards bond market. The cascading effects are most prominent in the stock market and there is little evidence that investors “herded” towards the Treasury bills market.  In view of the findings and conclusions, the following recommendations are made: Investors should diversify efficiently by holding a portfolio of either stocks and treasury bills or bond and treasury bills. They should discount inefficient diversification that arise when the same factors could influence the assets in a portfolio. Investors should invest in Treasury bill, and choose either bond or stock. Bond for natural risk averse investors and   otherwise stock for risk plungers. The stock and Treasury bill markets show high and moderate evidence of herding behaviour respectively occasioned by fear and panic. Rational investors could take advantage of this behaviour for higher returns by acting on the contrary to the herding instinct.