IDEAS home Printed from https://ideas.repec.org/a/taf/wjabxx/v16y2015i1-2p84-108.html
   My bibliography  Save this article

Modelling spillovers between stock market and FX market: evidence for Nigeria

Author

Listed:
  • Afees A. Salisu
  • Tirimisiyu F. Oloko

Abstract

The need to capture the foreign exchange (FX) and stock markets nexus in Nigeria is underscored by the rapidly expanding financial markets integration due to trade and financial liberalization policies which seem to have enhanced the inflow of capital as well as accelerated investment/business interactions. Using variants of the VARMA-AMGARCH model of McAleer, Hoti, and Chan (2009), we find that volatility persistence in the stock market is accentuated by bad news in the market and moderated by good news in the FX market. Finally, we establish that ignoring the asymmetric effects may exaggerate the spillover results.

Suggested Citation

  • Afees A. Salisu & Tirimisiyu F. Oloko, 2015. "Modelling spillovers between stock market and FX market: evidence for Nigeria," Journal of African Business, Taylor & Francis Journals, vol. 16(1-2), pages 84-108, January.
    • Handle: RePEc:taf:wjabxx:v:16:y:2015:i:1-2:p:84-108
    DOI: 10.1080/15228916.2015.1061285
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1080/15228916.2015.1061285
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1080/15228916.2015.1061285?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Nicolaas Groenewold & James E H Paterson, 2011. "Stock Prices And Exchange Rates In Australia: Are Commodity Prices The Missing Link?," Economics Discussion / Working Papers 11-07, The University of Western Australia, Department of Economics.
    2. Paul J.J. Welfens & Dora Borbély, 2004. "Exchange Rate Developments and Stock Market Dynamics in Transition Countries: Theory and Empirical Analysis," EIIW Discussion paper disbei126, Universitätsbibliothek Wuppertal, University Library.
    3. Chang, Chia-Lin & McAleer, Michael & Tansuchat, Roengchai, 2011. "Crude oil hedging strategies using dynamic multivariate GARCH," Energy Economics, Elsevier, vol. 33(5), pages 912-923, September.
    4. Hooi-Hooi Lean & Marwan Halim, 2005. "Bivariate Causality between Exchange Rates and Stock Prices on Major Asian Countries," Monash Economics Working Papers 10/05, Monash University, Department of Economics.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Tian, Maoxi & El Khoury, Rim & Alshater, Muneer M., 2023. "The nonlinear and negative tail dependence and risk spillovers between foreign exchange and stock markets in emerging economies," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 82(C).
    2. Salisu, Afees A. & Ndako, Umar B., 2018. "Modelling stock price–exchange rate nexus in OECD countries: A new perspective," Economic Modelling, Elsevier, vol. 74(C), pages 105-123.
    3. Oloko, Tirimisiyu F., 2018. "Portfolio diversification between developed and developing stock markets: The case of US and UK investors in Nigeria," Research in International Business and Finance, Elsevier, vol. 45(C), pages 219-232.
    4. Wee-Yeap Lau & You-How Go, 2018. "Dynamic Causality Between Stock Return and Exchange Rate: Is Stock-Oriented Hypothesis More Relevant in Malaysia?," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 25(2), pages 137-157, June.
    5. Effiong, Ekpeno L., 2016. "Nonlinear Dependence between Stock Prices and Exchange Rate in Nigeria," MPRA Paper 74336, University Library of Munich, Germany.
    6. Dahiru A. Balaa & Taro Takimotob, 2017. "Stock markets volatility spillovers during financial crises: A DCC-MGARCH with skewed-t density approach," Borsa Istanbul Review, Research and Business Development Department, Borsa Istanbul, vol. 17(1), pages 25-48, March.
    7. Salisu, Afees A. & Vo, Xuan Vinh, 2021. "The behavior of exchange rate and stock returns in high and low interest rate environments," International Review of Economics & Finance, Elsevier, vol. 74(C), pages 138-149.
    8. Hassan, Aminu & Ibrahim, Masud Usman & Bala, Ahmed Jinjiri, 2024. "Vulnerability of a developing stock market to openness: One-way return and volatility transmissions," International Review of Financial Analysis, Elsevier, vol. 93(C).
    9. Xie, Zixiong & Chen, Shyh-Wei & Wu, An-Chi, 2020. "The foreign exchange and stock market nexus: New international evidence," International Review of Economics & Finance, Elsevier, vol. 67(C), pages 240-266.
    10. Aliyu, Shehu Usman Rano & Aminu, Abubakar Wambai, 2018. "Economic regimes and stock market performance in Nigeria: Evidence from regime switching model," MPRA Paper 91430, University Library of Munich, Germany, revised 03 Oct 2018.
    11. Afees Adebare Salisu & Raymond Swaray & Tirimisiyu Oloko, 2017. "US stocks in the presence of oil price risk: Large cap vs. Small cap," Economics and Business Letters, Oviedo University Press, vol. 6(4), pages 116-124.
    12. Xingxing He & Korhan K. Gokmenoglu & Dervis Kirikkaleli & Syed Kumail Abbas Rizvi, 2023. "Co‐movement of foreign exchange rate returns and stock market returns in an emerging market: Evidence from the wavelet coherence approach," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(2), pages 1994-2005, April.
    13. Tule, Moses & Dogo, Mela & Uzonwanne, Godfrey, 2018. "Volatility of stock market returns and the naira exchange rate," Global Finance Journal, Elsevier, vol. 35(C), pages 97-105.
    14. Tshikalange, Mulanga & Bonga-Bonga, Lumengo, 2023. "The determinants of the dynamic correlation between foreign exchange and equity markets: Cross-Country comparisons," MPRA Paper 118401, University Library of Munich, Germany.
    15. Nenubari Ikue John & Emeka Nkoro & Jeremiah Anietie, 2021. "Time-Gap effects of crude oil prices on the foreign exchange rates: Evidence from Nigeria," Bussecon Review of Social Sciences (2687-2285), Bussecon International Academy, vol. 3(3), pages 31-44, July.
    16. Salisu, Afees A. & Ogbonna, Ahamuefula E. & Lasisi, Lukman & Olaniran, Abeeb, 2022. "Geopolitical risk and stock market volatility in emerging markets: A GARCH – MIDAS approach," The North American Journal of Economics and Finance, Elsevier, vol. 62(C).
    17. Salisu, Afees A. & Vo, Xuan Vinh & Lawal, Adedoyin, 2021. "Hedging oil price risk with gold during COVID-19 pandemic," Resources Policy, Elsevier, vol. 70(C).
    18. 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.
    19. Uzonwanne, Godfrey, 2021. "Volatility and return spillovers between stock markets and cryptocurrencies," The Quarterly Review of Economics and Finance, Elsevier, vol. 82(C), pages 30-36.
    20. Abdulsalam Abidemi Sikiru & Afees A. Salisu, 2023. "Hedging against risks associated with travel and tourism stocks during COVID‐19 pandemic: The role of gold," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(2), pages 1872-1882, April.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Bouri, Elie & Lucey, Brian & Roubaud, David, 2020. "Cryptocurrencies and the downside risk in equity investments," Finance Research Letters, Elsevier, vol. 33(C).
    2. Matteo Manera & Marcella Nicolini & Ilaria Vignati, 2012. "Returns in commodities futures markets and financial speculation: a multivariate GARCH approach," Quaderni di Dipartimento 170, University of Pavia, Department of Economics and Quantitative Methods.
    3. Antonakakis, Nikolaos & Cunado, Juncal & Filis, George & Gabauer, David & Perez de Gracia, Fernando, 2018. "Oil volatility, oil and gas firms and portfolio diversification," Energy Economics, Elsevier, vol. 70(C), pages 499-515.
    4. Zhuo Chen & Bo Yan & Hanwen Kang, 2022. "Dynamic correlation between crude oil and agricultural futures markets," Review of Development Economics, Wiley Blackwell, vol. 26(3), pages 1798-1849, August.
    5. Chia-Lin Chang & David E. Allen & Michael McAleer & Ju-Ting Tang & Teodosio Pérez Amaral, 2013. "Risk Modelling and Management: An Overview," Documentos de Trabajo del ICAE 2013-22, Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales, Instituto Complutense de Análisis Económico.
    6. Gannon, Gerard L. & Thuraisamy, Kannan S., 2017. "Sovereign risk and the impact of crisis: Evidence from Latin AmericaAuthor-Name: Batten, Jonathan A," Journal of Banking & Finance, Elsevier, vol. 77(C), pages 328-350.
    7. Chang, Chia-Lin & Hsu, Hui-Kuang & McAleer, Michael, 2013. "Is small beautiful? Size effects of volatility spillovers for firm performance and exchange rates in tourism," The North American Journal of Economics and Finance, Elsevier, vol. 26(C), pages 519-534.
    8. Sabri Boubaker & Zhenya Liu & Yaosong Zhan, 2022. "Risk management for crude oil futures: an optimal stopping-timing approach," Annals of Operations Research, Springer, vol. 313(1), pages 9-27, June.
    9. Arfaoui, Mongi & Ben Rejeb, Aymen, 2015. "Return dynamics and volatility spillovers between FOREX and MENA stock markets: what to remember for portfolio choice?," MPRA Paper 61520, University Library of Munich, Germany.
    10. Mensi, Walid & Hammoudeh, Shawkat & Nguyen, Duc Khuong & Yoon, Seong-Min, 2014. "Dynamic spillovers among major energy and cereal commodity prices," Energy Economics, Elsevier, vol. 43(C), pages 225-243.
    11. Stefanescu, Razvan & Dumitriu, Ramona, 2011. "Linkages between the stock prices and the exchange rates during the global crisis: the case of Romania," MPRA Paper 43350, University Library of Munich, Germany, revised 22 Oct 2011.
    12. repec:ipg:wpaper:2014-552 is not listed on IDEAS
    13. Bouri, Elie & Awartani, Basel & Maghyereh, Aktham, 2016. "Crude oil prices and sectoral stock returns in Jordan around the Arab uprisings of 2010," Energy Economics, Elsevier, vol. 56(C), pages 205-214.
    14. Ching-Chun Wei, 2016. "Modeling and Analyzing the Mean and Volatility Relationship between Electricity Price Returns and Fuel Market Returns," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 8(7), pages 1-55, July.
    15. Carlos Trucíos & João H. G. Mazzeu & Marc Hallin & Luiz K. Hotta & Pedro L. Valls Pereira & Mauricio Zevallos, 2022. "Forecasting Conditional Covariance Matrices in High-Dimensional Time Series: A General Dynamic Factor Approach," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 41(1), pages 40-52, December.
    16. Ahmed, Abdullahi D. & Huo, Rui, 2021. "Volatility transmissions across international oil market, commodity futures and stock markets: Empirical evidence from China," Energy Economics, Elsevier, vol. 93(C).
    17. Khan, Khalid & SU, Chi-Wei & Khurshid, Adnan & Rehman, Ashfaq U., 2018. "How Often Does the Exchange Rate Granger Cause the Stock Market in Pakistan? A Bootstrap Rolling Window Approach," Asian Journal of Applied Economics, Kasetsart University, Center for Applied Economics Research, vol. 25(1), October.
    18. Shalini, Velappan & Prasanna, Krishna, 2016. "Impact of the financial crisis on Indian commodity markets: Structural breaks and volatility dynamics," Energy Economics, Elsevier, vol. 53(C), pages 40-57.
    19. Yudong Wang & Li Liu, 2016. "Crude oil and world stock markets: volatility spillovers, dynamic correlations, and hedging," Empirical Economics, Springer, vol. 50(4), pages 1481-1509, June.
    20. Abakah, Emmanuel Joel Aikins & Tiwari, Aviral Kumar & Adekoya, Oluwasegun B. & Oteng-Abayie, Eric Fosu, 2023. "An analysis of the time-varying causality and dynamic correlation between green bonds and US gas prices," Technological Forecasting and Social Change, Elsevier, vol. 186(PA).
    21. Caporin, M. & McAleer, M.J., 2013. "Ten Things You Should Know About DCC," Econometric Institute Research Papers EI 2013-13, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:wjabxx:v:16:y:2015:i:1-2:p:84-108. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/wjab20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.