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Stock Prices and Exchange Rate Interactions in Nigeria: A Maiden Intra-Global Financial Crisis Investigation

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  • Shehu Usman Rano Aliyu

Abstract

This paper examines the long and short-run interactions between stock prices and exchange rates in Nigeria, based on a sample, from February 1, 2001 to December 31, 2008. Three models were derived from the sample—the pre-crisis, crisis and basic models. The paper tests the time series properties of the series using the Augmented Dickey Fuller (ADF) and the Philips and Perron (PP) tests. In addition, the Engle and Granger two-step and the Johansen and Juselius cointegration procedures are also applied. The empirical results show that all the series are I(1) and evidence of cointegration is established using the Johansen and Juselius methodology. Furthermore, causality tests reveal strong evidence of long-run bidirectional relationships between stock prices and exchange rates in the models. Policy-wise, the findings imply that the monetary authorities in Nigeria are not constrained to take stock market developments into account in achieving their exchange rate policy objectives, as established in the paper. It, therefore, recommends putting measures in place that would promote greater stability and efficiency of Nigeria’s foreign exchange market.

Suggested Citation

  • Shehu Usman Rano Aliyu, 2009. "Stock Prices and Exchange Rate Interactions in Nigeria: A Maiden Intra-Global Financial Crisis Investigation," The IUP Journal of Financial Economics, IUP Publications, vol. 0(3 & 4), pages 7-23, September.
    • Handle: RePEc:icf:icfjfe:v:07:y:2009:i:3&4:p:7-23
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    Citations

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    Cited by:

    1. Effiong, Ekpeno L., 2016. "Nonlinear Dependence between Stock Prices and Exchange Rate in Nigeria," MPRA Paper 74336, University Library of Munich, Germany.
    2. Charles O. Manasseh & Nnah M. Iroha & Kingsley I. Okere & Ifeoma C. Nwakoby & Ogochukwu C. Okanya & Nnenna Nwonye & Onuselogu Odidi & Oliver I. Inyiama, 2022. "Application of Markov chain to share price movement in Nigeria (1985–2019)," Future Business Journal, Springer, vol. 8(1), pages 1-14, December.
    3. Maryatmo, Rogatianus, 2010. "Pengaruh Jangka Pendek dan Jangka Panjang Perubahan Suku Bunga dan Kurs Rupiah Terhadap Harga Saham : Studi Empiris di Indonesia (2000:1 – 2010:4)," MPRA Paper 25532, University Library of Munich, Germany.
    4. Aliyu, Shehu Usman Rano, 2011. "Reactions of stock market to monetary policy shocks during the global financial crisis: the Nigerian case," MPRA Paper 35581, University Library of Munich, Germany, revised 28 Dec 2011.
    5. Tri Nguyen & Quang Bui & Tan Nguyen, 2016. "Causal Correlation between Exchange Rate and Stock Index: Evidence from VN-Index," Asian Social Science, Canadian Center of Science and Education, vol. 12(8), pages 1-43, August.
    6. Aliyu, Shehu Usman Rano, 2020. "What have we learnt from modelling stock returns in Nigeria: Higgledy-piggledy?," MPRA Paper 110382, University Library of Munich, Germany, revised 06 Jun 2021.
    7. Ahmed S. Alimi & Oladotun D. Olaniran, 2019. "Monetary Policy and the Stock Price - Exchange Rate Nexus: New Insights from Influential African Economies," Asian Development Policy Review, Asian Economic and Social Society, vol. 7(2), pages 66-79, June.
    8. Agya Atabani Adi, 2017. "Returns Effect, Shocks and Volatility Transmission between Foreign Exchange-Stock Markets in Nigeria," Academic Journal of Economic Studies, Faculty of Finance, Banking and Accountancy Bucharest,"Dimitrie Cantemir" Christian University Bucharest, vol. 3(1), pages 29-38, March.
    9. Shehu U.R. Aliyu, 2019. "Do Presidential Elections Affect Stock Market Returns In Nigeria?," West African Journal of Monetary and Economic Integration, West African Monetary Institute, vol. 19(1), pages 40-56, June.
    10. Benjamin, Oluwasegun Olawale & Fatile, John Ojo, 2019. "Structural Analysis of the Effect of Exchange Rate Movement on Stock Market Performance in Nigeria," MPRA Paper 98329, University Library of Munich, Germany, revised 19 Nov 2019.
    11. Musa Ilias Biala & A.K. Oladejo, 2022. "On the Nexus between Exchange Rate and Stock Price in Nigeria," International Journal of Finance, Insurance and Risk Management, International Journal of Finance, Insurance and Risk Management, vol. 12(1), pages 80-99.
    12. Steven Liew Woon Choy & Jayaraman Munusamy & Shankar Chelliah & Ally Mandari, 2011. "Effects of Financial Distress Condition on the Company Performance: A Malaysian Perspective," Review of Economics & Finance, Better Advances Press, Canada, vol. 1, pages 85-99, August.

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