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Exchange Rate and Inflation Volatility and Stock Prices Volatility: Evidence from Nigeria, 1986-2012

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  • Emeka Nkoro
  • Aham Kelvin Uko

Abstract

This study investigated the relationship between exchange rate and inflation volatility and stock prices volatility in Nigeria, using time series quarterly data from 1986Q1-2012Q4. The volatilities of exchange rate and inflation in this study were calculated using standard GARCH(1,1) models. The relationship between exchange rate, inflation volatility and stock prices volatility was examined using GARCH(1,1)-S models of an extended GARCH-X models. The findings of the study show that there is a negative relationship between stock market prices volatility and exchange rate and inflation volatility in Nigeria. This result has an important implication for the investors and regulators in the stock market. Investors and regulators in the Nigeria stock market should take note of the systematic risks revealed by the exchange rate and inflation volatility when structuring their investment portfolios and diversification strategies as well as in formulating policies respectively.

Suggested Citation

  • Emeka Nkoro & Aham Kelvin Uko, 2016. "Exchange Rate and Inflation Volatility and Stock Prices Volatility: Evidence from Nigeria, 1986-2012," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 6(6), pages 1-4.
    • Handle: RePEc:spt:apfiba:v:6:y:2016:i:6:f:6_6_4
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    References listed on IDEAS

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    Cited by:

    1. I. E. Okorie & A. C. Akpanta & J. Ohakwe & D. C. Chikezie & C. U. Onyemachi & M. C. Ugwu, 2021. "Modeling the Relationships Across Nigeria Inflation, Exchange Rate, and Stock Market Returns and Further Analysis," Annals of Data Science, Springer, vol. 8(2), pages 295-329, June.
    2. Terhemba Iorember, Paul & Usar, Terzungwe & Hannafi Ibrahim, Kabiru, 2018. "Analyzing inflation in Nigeria: a fractionally integrated ARFIMA-GARCH modelling Approach," African Journal of Economic Review, African Journal of Economic Review, vol. 6(1), January.
    3. 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.
    4. Musa, Nuhu, 2020. "Impact of Exchange Rate Volatility on Inflation in Nigeria," Journal of Contemporary Research in Business, Economics and Finance, Michael Laurence, vol. 3(1), pages 26-38.

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