AN INTERPLAY OF OIL PRICE VOLATILITY, EXCHANGE RATE AND STOCK RETURNS IN NIGERIA
Journal of Global Economics, Management and Business Research,
Page 24-38
DOI:
10.56557/jgembr/2022/v14i38048
Abstract
We analyze the interplay of oil price volatility, exchange rate and stock market return in Nigeria using 5-days daily data covering 1985 to 2021. The variables used in the study are oil price and exchange rate volatilities as the independent variables, and stock market return as the dependent variable. The data for the study was obtained from the CBN statistical database; We employed descriptive statistics and VECH GARCH (1,1) model in our estimation. The result of the analysis shows that both the exchange rate and oil price volatility positively and significantly influence the shocks to stock market return in Nigeria. In conclusion, we observed that shocks to stock market return are attributed to oil price volatility and exchange rate volatility. we advocate for the diversification of the Nigerian economy to reduce the impact of oil price volatility on stock market return.
Keywords:
- Volatility
- exchange rate
- Garch
- Nigeria
How to Cite
ODICHE, W. (2022). AN INTERPLAY OF OIL PRICE VOLATILITY, EXCHANGE RATE AND STOCK RETURNS IN NIGERIA. Journal of Global Economics, Management and Business Research, 14(3-4), 24-38. https://doi.org/10.56557/jgembr/2022/v14i38048
References
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Ajayi RA, Mougoue M. On the dynamic relationship between stock prices and exchange rate. Journal of Financial Research. 1996;19(2):193-207.
Osei K. Macroeconomic factors and Ghana stock market. The African Finance Journal. 2006;8(1):26-38.
Maku OE, Atanda AA. Do macroeconomic indicators exert shock on the Nigerian capital market? Munich Personal Repec Archive. 2009;1791:1-26.
Alshogeathri MA. Macroeconomic determinants of the stock market movements: Empirical evidence from the Saudi stock market. An Abstract of a Dissertation, University Manhattan, Kansas State; 2011. Available: http://dx.doi.org/10.1109/ieeestd.2011.6032690
Osamwonyi IO, Evbayiro-Osagie EI. The relationship between macroeconomic variables and stock market index in Nigeria. Journal of Economics. 2012;3(1):55-63.
Arnold IJM, Vrugt EB. Stock market volatility and macroeconomic uncertainty:Evidence from survey data. NRG Working Paper Series. 2006;6 – 8.
Corradi V, Distaso W, Mele A. Macroeconomic determinants of stock market volatility and volatility of risk premium. Working Paper, University of Warwick, United Kingdom; 2009.
Tajudeen A, Abraham TW. The impact of oil price volatility on the Nigerian stock market: Evidence from autoregressive distributed lag method. A paper presented at the Conference of Managing the Challenges of Global Financial Crises in Developing Economies, Nasarawa State University, Keffi, Nigeria, March 9th to 11th; 2010.
Chinzara, Zivanemoyo. Macroeconomic uncertainty and conditional stock market volatility in South Africa. South African Journal of Economics. 2011;79(1):27-49.
Arodoye NL. An econometric analysis of the impact of macroeconomic variables on stock prices in Nigeria: A vector autoregressive model approach. International Review of Business and Social Science. 2012;1(8):63-77.
Chowdhury S, Mollick A, Akhater M. Does predicted macroeconomic volatility influence stock market volatility? Evidence from the Bangladesh capital market. University of Rajshahi, Banglandesh; 2006.
Chen NF, Roll R, Ross S. Economic forces and the stock market. Journal of Business. 1986;59:383-403.
Pearce DK, amp; Roley VV. Stock prices and economic news. Journal of Business. 1985;58:49-67.
Hardouvellis, GA. Macroeconomic information and stock prices. Journal of Economics and Business. 1987;39:131–140.
Cutler DM, Poterba JM, Summers LH. What moves stock prices? Journal of Portfolio Management. 1989;15:4-12.
Berkman NG. On the significance of weekly changes in M1. Economic Review, Federal Reserve Bank of Boston. 1978;3:5-22.
Lynge MJ. Money supply announcements and stock prices. The Journal of Portfolio Management. 1981;8:40-43.
Cornell B. The money supply announcements puzzle:Review and interpretation. American Economic Review. 1983;73(4):644-657.
Okonjo-Iweala N. Nigeria’s economic reforms: Progress and challenges. Brookings Global Economy and Development, Working Paper. 2006;6:1-30.
Ross S. The arbitrage theory of capital asset pricing. Journal of Economic Theory. 1976;13:341-360.
Adjasi CKD, Biekpe BN. Stock market returns and exchange rate dynamics in selected African countries: A bivariate analysis. The African Finance Journal. 2005;2(6):17-28.
Olowe RA. The relationship between stock prices and macroeconomic factors in the Nigerian stock market. African Review of Money Finance and Banking. 2007;2007:79-98.
Christopher G, Minsoo L, Huahwa A, Jun Z. Macroeconomic variables and stock market interactions:New Zealand evidence. Journal of Investment Management and Financial Innovation. 2006;12:3-4.
Campbell JY, Shiller RJ. Stock prices, earnings and expected dividend. Journal of Finance. 1988;43:661-676.
Asaolu TO, & Ogunmuyiwa MS. Exchange rate risk exposure of Nigerian listed firms:An empirical examination. Asian Journal of Business Management. 2011;3(1):72-78.
Olasumbo OO. Impact of macroeconomic variables on Nigeria stock market index. (MSc. Thesis). Ahmadu Bello University, Zaria; 2012. Retrieved February 15, 2013. Available:http://hdl.handle.net.
Tan BC, Loh WL, Zainudin A. Dynamics between stock prices, oil price and macroeconomic activities: A VAR and impulse response approach. Proceedings of the 2nd IMT GT regional conference on mathematics, statistics and applications. University of Science, Malaysia. 2006;167-179.
Buyuksalvarci A. The effects of macroeconomics variables on stock returns:Evidence from Turkey. European Journal of Social Sciences. 2010;14(3):404-416.
Suliaman DM, Hussain , Ali A. Impact of macroeconomic variables on stock prices:Empirical evidence in case of KSE. European Journal of Scientific Research. 2009;38(1):96 -103.
Tursoy T, Gunsel N, Rjoub H. Macroeconomic factors, the APT and the Istanbul stock market. International Research Journal of Finance and Economics. 2008;22:49-57.
Kolawole S, Olalekan MS. Exchange rate volatility and the stock market: The Nigerian experience. 2014;C10113.
Mlambo C, Maradza A, Sibanda K. Effects of exchange rate volatility on the stock market: A case study of South Africa. Mediterranean Journal of social Sciences. 2013;4(14):561-570.
Mukherjee TK, Naka A. Dynamic relations between macroeconomic variables and the Japanese stock market:An application of vectors errors correction model. Journal of Finance Research. 1995;18:223- 237.
Kuwornu JKM, Owusu-Nantwi V. Macroeconomic variables and stock market returns. Full information livelihood estimation. Research Journal in Finance and Accounting. 2011;2(4):49-63.
Okoli MN. Return volatility interactions in the Nigerian stock market. Asian Economic and Financial Review. 2012;2(2):389-399.
Dickey DA, Fuller WA. Distribution of the estimations for autoregressive time series with a unit root. Journal of American Statistical Association. 1979;74(6):427–31.
Olawoye A. Nigerian economy: Growth and the role of stock market. Journal of Economic and Financial Studies. 2011;2(2):21 -34.
Torbira LL, Agbam AS. Macroeconomic risk factors and stock returns: The arbitrage pricing approach. Journal of Finance, Banking and Investment. 2017;4(1):41-71.
Hassan MA, Zaman A. Volatility nexus between stock market and macroeconomic variables in Bangladesh: An extended GARCH approach. Scientific Annals of Economics and Business. 2017; 64(2):233-243.
Abimbola AB, Olusegun AJ. Appraising the exchange rate volatility, stock market performance and aggregate output nexus in Nigeria. Business and Economics Journal. 2017;8(1):1-12.
Izunobi AO, Nzotta SM, Ebiringa OT, Akujuobi ABC, Chigbu EE. Macroeconomic variables volatility in the Nigerian stock market:An empirical analysis. International Journal of Management Studies and Research. 2017;5(6):1-13.
Abdulkareem A, Abdulhakeem KA. Analyzing oil price – Macroeconomic volatility in Nigeria. CBN Journal of Applied Statistics. 2016;7(10):1-22.
Adeniji SO. An empirical investigation of the relationship between stock market prices volatility and macroeconomic variables volatility in Nigeria. European Journal of Academic Essays. 2015;2(11):1-12.
Pinjaman SB, Aralas SB. The dynamic stock returns volatility and macroeconomic factors in Malaysia:A sectorial study. South East Asia Journal of Contemporary Business Economics and Law. 2015;8(3):33-40.
Kirvi E, Wawire NHW, Onono PO. Macroeconomic variables volatility and stock market returns:A case of Nairobi securities exchange. International Journal of Economics and Finance. 2014;6(8):214-228.
Attari MIJ, Safdar L. The relationship between macroeconomic volatility and the stock market volatility:Empirical evidence from Pakistan. Pakistan Journal of Commerce and Social Sciences. 2013; 7(2):309-3.
Nkoro E, Uko AK. Exchange rate and inflation volatility and stock prices volatility. Evidence from Nigeria. Journal of Applied Finance and Banking. 2016;6:57-70.
Onakoya AB. Stock market volatility and economic growth in Nigeria (1980-2010). International Review of Management and Business Research. 2013;2(1):201-209.
AlJafari MK, Salameh RM, Habbash MR. Investigating the relationship between stock market returns and macroeconomic variables: Evidence from developed and emerging markets. International Journal of Finance and Economics. 2011;79:6-30.
Okoro CO. Macroeconomic factors and stock market performance. Evidence from Nigeria. International Journal of Social Sciences and Humanities Reviews. 2017;7(1):1-9.
Omorokunwa OG, Ikponmwosa N. Macroeconomic variables and stock price volatility in Nigeria. Annals of the University of Petrosani, Economics. 2014;14(1):259-268.
Engle RF. Autoregressive conditional heteroscedasticity with estimates of the variance of United Kingdom inflation. Econometrica. 1982;50:987-1008
Bollerslev T. Generalized autoregressive conditional heteroscedasticity. Journal of Econometrics. 1986;31:307-327.
Engle RF, Kroner K. Multivariate simultaneous generalized ARCH. Econometric Theory. 1995;11:122-150.
Glosten L, Jagannathan R, Runkle D. On the relationship between the expected value and the volatility of the nominal excess returns on stocks. Journal of Finance. 1993;48, 1779- 180.
Ajayi RA, Mougoue M. On the dynamic relationship between stock prices and exchange rate. Journal of Financial Research. 1996;19(2):193-207.
Osei K. Macroeconomic factors and Ghana stock market. The African Finance Journal. 2006;8(1):26-38.
Maku OE, Atanda AA. Do macroeconomic indicators exert shock on the Nigerian capital market? Munich Personal Repec Archive. 2009;1791:1-26.
Alshogeathri MA. Macroeconomic determinants of the stock market movements: Empirical evidence from the Saudi stock market. An Abstract of a Dissertation, University Manhattan, Kansas State; 2011. Available: http://dx.doi.org/10.1109/ieeestd.2011.6032690
Osamwonyi IO, Evbayiro-Osagie EI. The relationship between macroeconomic variables and stock market index in Nigeria. Journal of Economics. 2012;3(1):55-63.
Arnold IJM, Vrugt EB. Stock market volatility and macroeconomic uncertainty:Evidence from survey data. NRG Working Paper Series. 2006;6 – 8.
Corradi V, Distaso W, Mele A. Macroeconomic determinants of stock market volatility and volatility of risk premium. Working Paper, University of Warwick, United Kingdom; 2009.
Tajudeen A, Abraham TW. The impact of oil price volatility on the Nigerian stock market: Evidence from autoregressive distributed lag method. A paper presented at the Conference of Managing the Challenges of Global Financial Crises in Developing Economies, Nasarawa State University, Keffi, Nigeria, March 9th to 11th; 2010.
Chinzara, Zivanemoyo. Macroeconomic uncertainty and conditional stock market volatility in South Africa. South African Journal of Economics. 2011;79(1):27-49.
Arodoye NL. An econometric analysis of the impact of macroeconomic variables on stock prices in Nigeria: A vector autoregressive model approach. International Review of Business and Social Science. 2012;1(8):63-77.
Chowdhury S, Mollick A, Akhater M. Does predicted macroeconomic volatility influence stock market volatility? Evidence from the Bangladesh capital market. University of Rajshahi, Banglandesh; 2006.
Chen NF, Roll R, Ross S. Economic forces and the stock market. Journal of Business. 1986;59:383-403.
Pearce DK, amp; Roley VV. Stock prices and economic news. Journal of Business. 1985;58:49-67.
Hardouvellis, GA. Macroeconomic information and stock prices. Journal of Economics and Business. 1987;39:131–140.
Cutler DM, Poterba JM, Summers LH. What moves stock prices? Journal of Portfolio Management. 1989;15:4-12.
Berkman NG. On the significance of weekly changes in M1. Economic Review, Federal Reserve Bank of Boston. 1978;3:5-22.
Lynge MJ. Money supply announcements and stock prices. The Journal of Portfolio Management. 1981;8:40-43.
Cornell B. The money supply announcements puzzle:Review and interpretation. American Economic Review. 1983;73(4):644-657.
Okonjo-Iweala N. Nigeria’s economic reforms: Progress and challenges. Brookings Global Economy and Development, Working Paper. 2006;6:1-30.
Ross S. The arbitrage theory of capital asset pricing. Journal of Economic Theory. 1976;13:341-360.
Adjasi CKD, Biekpe BN. Stock market returns and exchange rate dynamics in selected African countries: A bivariate analysis. The African Finance Journal. 2005;2(6):17-28.
Olowe RA. The relationship between stock prices and macroeconomic factors in the Nigerian stock market. African Review of Money Finance and Banking. 2007;2007:79-98.
Christopher G, Minsoo L, Huahwa A, Jun Z. Macroeconomic variables and stock market interactions:New Zealand evidence. Journal of Investment Management and Financial Innovation. 2006;12:3-4.
Campbell JY, Shiller RJ. Stock prices, earnings and expected dividend. Journal of Finance. 1988;43:661-676.
Asaolu TO, & Ogunmuyiwa MS. Exchange rate risk exposure of Nigerian listed firms:An empirical examination. Asian Journal of Business Management. 2011;3(1):72-78.
Olasumbo OO. Impact of macroeconomic variables on Nigeria stock market index. (MSc. Thesis). Ahmadu Bello University, Zaria; 2012. Retrieved February 15, 2013. Available:http://hdl.handle.net.
Tan BC, Loh WL, Zainudin A. Dynamics between stock prices, oil price and macroeconomic activities: A VAR and impulse response approach. Proceedings of the 2nd IMT GT regional conference on mathematics, statistics and applications. University of Science, Malaysia. 2006;167-179.
Buyuksalvarci A. The effects of macroeconomics variables on stock returns:Evidence from Turkey. European Journal of Social Sciences. 2010;14(3):404-416.
Suliaman DM, Hussain , Ali A. Impact of macroeconomic variables on stock prices:Empirical evidence in case of KSE. European Journal of Scientific Research. 2009;38(1):96 -103.
Tursoy T, Gunsel N, Rjoub H. Macroeconomic factors, the APT and the Istanbul stock market. International Research Journal of Finance and Economics. 2008;22:49-57.
Kolawole S, Olalekan MS. Exchange rate volatility and the stock market: The Nigerian experience. 2014;C10113.
Mlambo C, Maradza A, Sibanda K. Effects of exchange rate volatility on the stock market: A case study of South Africa. Mediterranean Journal of social Sciences. 2013;4(14):561-570.
Mukherjee TK, Naka A. Dynamic relations between macroeconomic variables and the Japanese stock market:An application of vectors errors correction model. Journal of Finance Research. 1995;18:223- 237.
Kuwornu JKM, Owusu-Nantwi V. Macroeconomic variables and stock market returns. Full information livelihood estimation. Research Journal in Finance and Accounting. 2011;2(4):49-63.
Okoli MN. Return volatility interactions in the Nigerian stock market. Asian Economic and Financial Review. 2012;2(2):389-399.
Dickey DA, Fuller WA. Distribution of the estimations for autoregressive time series with a unit root. Journal of American Statistical Association. 1979;74(6):427–31.
Olawoye A. Nigerian economy: Growth and the role of stock market. Journal of Economic and Financial Studies. 2011;2(2):21 -34.
Torbira LL, Agbam AS. Macroeconomic risk factors and stock returns: The arbitrage pricing approach. Journal of Finance, Banking and Investment. 2017;4(1):41-71.
Hassan MA, Zaman A. Volatility nexus between stock market and macroeconomic variables in Bangladesh: An extended GARCH approach. Scientific Annals of Economics and Business. 2017; 64(2):233-243.
Abimbola AB, Olusegun AJ. Appraising the exchange rate volatility, stock market performance and aggregate output nexus in Nigeria. Business and Economics Journal. 2017;8(1):1-12.
Izunobi AO, Nzotta SM, Ebiringa OT, Akujuobi ABC, Chigbu EE. Macroeconomic variables volatility in the Nigerian stock market:An empirical analysis. International Journal of Management Studies and Research. 2017;5(6):1-13.
Abdulkareem A, Abdulhakeem KA. Analyzing oil price – Macroeconomic volatility in Nigeria. CBN Journal of Applied Statistics. 2016;7(10):1-22.
Adeniji SO. An empirical investigation of the relationship between stock market prices volatility and macroeconomic variables volatility in Nigeria. European Journal of Academic Essays. 2015;2(11):1-12.
Pinjaman SB, Aralas SB. The dynamic stock returns volatility and macroeconomic factors in Malaysia:A sectorial study. South East Asia Journal of Contemporary Business Economics and Law. 2015;8(3):33-40.
Kirvi E, Wawire NHW, Onono PO. Macroeconomic variables volatility and stock market returns:A case of Nairobi securities exchange. International Journal of Economics and Finance. 2014;6(8):214-228.
Attari MIJ, Safdar L. The relationship between macroeconomic volatility and the stock market volatility:Empirical evidence from Pakistan. Pakistan Journal of Commerce and Social Sciences. 2013; 7(2):309-3.
Nkoro E, Uko AK. Exchange rate and inflation volatility and stock prices volatility. Evidence from Nigeria. Journal of Applied Finance and Banking. 2016;6:57-70.
Onakoya AB. Stock market volatility and economic growth in Nigeria (1980-2010). International Review of Management and Business Research. 2013;2(1):201-209.
AlJafari MK, Salameh RM, Habbash MR. Investigating the relationship between stock market returns and macroeconomic variables: Evidence from developed and emerging markets. International Journal of Finance and Economics. 2011;79:6-30.
Okoro CO. Macroeconomic factors and stock market performance. Evidence from Nigeria. International Journal of Social Sciences and Humanities Reviews. 2017;7(1):1-9.
Omorokunwa OG, Ikponmwosa N. Macroeconomic variables and stock price volatility in Nigeria. Annals of the University of Petrosani, Economics. 2014;14(1):259-268.
Engle RF. Autoregressive conditional heteroscedasticity with estimates of the variance of United Kingdom inflation. Econometrica. 1982;50:987-1008
Bollerslev T. Generalized autoregressive conditional heteroscedasticity. Journal of Econometrics. 1986;31:307-327.
Engle RF, Kroner K. Multivariate simultaneous generalized ARCH. Econometric Theory. 1995;11:122-150.
Glosten L, Jagannathan R, Runkle D. On the relationship between the expected value and the volatility of the nominal excess returns on stocks. Journal of Finance. 1993;48, 1779- 180.
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