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Modeling the Impact of Oil Price Shocks on Energy Sector Stock Returns: Evidence from Nigeria

Author

Listed:
  • Simeon Ebechidi

    (University of Nigeria)

  • Eleanya K. Nduka

    (University of Nigeria)

Abstract

This study examines the effect of oil price shocks on energy stock returns in Nigeria for the period from January, 2000 to December, 2015. The study employs the Augmented Dickey-Fuller (ADF) and Kwiatkowski-Phillips-Schmidt-Shin (KPSS) tests for Unit root and a General Autoregressive Conditional Heteroscedasticity (GARCH 1, 1) modeling approach. The mean equation reveals that if oil price increases by one percent, energy sector stock returns will decrease by 74%. If exchange rate increases by $1, energy sector stock returns increases by about 0.78%. Furthermore, a unit increase in interest rate differential will cause a decrease in energy sector stock returns by about 25%. On the other hand, results of the variance equation, which captures volatility, suggest that oil price shocks and energy stock returns are negatively related.

Suggested Citation

  • Simeon Ebechidi & Eleanya K. Nduka, 2017. "Modeling the Impact of Oil Price Shocks on Energy Sector Stock Returns: Evidence from Nigeria," Economics Bulletin, AccessEcon, vol. 37(4), pages 2574-2584.
    • Handle: RePEc:ebl:ecbull:eb-17-00518
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    References listed on IDEAS

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    More about this item

    Keywords

    Volatility; Stock; Oil; Returns; Heteroscedasticity; GARCH;
    All these keywords.

    JEL classification:

    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy
    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling

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