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Exchange rate dynamics and stock market performance in Nigeria: Evidence from a Nonlinear ARDL Approach

Author

Listed:
  • Mutiu A. Oyinlola

    (Department of Economics, University of Ibadan)

  • Tirimisyu F. Oloko

    (Centre for Econometric and Allied Research, University of Ibadan)

Abstract

This study investigates asymmetry in the impact of exchange rate on the Nigerian stock market using Nonlinear ARDL model by Shin et al. (2014), and it is the first study to do so. From the trend review, changes in the dynamics of exchange rate - stock market relationship was noticed, and this was accounted for using Bai and Perron (2003) multiple structural breaks test. Empirical findings from this study reveal that there is long run but no short run exchange rate asymmetry effect on the Nigerian stock market. Furthermore, the results suggest that banking sector recapitalization only affects the short run dynamics of stock – market exchange rate relationship. By implication, the Nigerian stock market adjust spontaneous or becomes more volatile after banking sector recapitalization. The policy implication from this study is that exchange rate policy cannot be used to correct short run disequilibrium in the Nigerian stock market, as it takes long term for the market to respond to changes in exchange rate. This is regardless of whether the policy being introduced is a revaluation or a devaluation policy.

Suggested Citation

  • Mutiu A. Oyinlola & Tirimisyu F. Oloko, 2018. "Exchange rate dynamics and stock market performance in Nigeria: Evidence from a Nonlinear ARDL Approach," Working Papers 059, Centre for Econometric and Allied Research, University of Ibadan.
    • Handle: RePEc:cui:wpaper:0059
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    References listed on IDEAS

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    Cited by:

    1. Mutiu A. Oyinlola & Tirimisiyu F. Oloko & Samuel Orekoya, 2021. "Ratchet Effect in Import Prices – Inflation Rate Nexus," Economic Alternatives, University of National and World Economy, Sofia, Bulgaria, issue 3, pages 335-354, September.
    2. 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.
    3. Omer Ahmed Sayed Mohamed & Faiza Omer Mohammed Elmahgop, 2020. "Is the Effect of the Exchange Rate on Stock Prices Symmetric or Asymmetric? Evidence from Sudan," International Journal of Economics and Financial Issues, Econjournals, vol. 10(2), pages 209-215.

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    More about this item

    Keywords

    Exchange rate; Stock prices; NARDL; Asymmetry; Bank sector recapitalization; Nigeria;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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