IDEAS home Printed from https://ideas.repec.org/a/spr/aodasc/v8y2021i2d10.1007_s40745-019-00206-7.html
   My bibliography  Save this article

Modeling the Relationships Across Nigeria Inflation, Exchange Rate, and Stock Market Returns and Further Analysis

Author

Listed:
  • I. E. Okorie

    (University of Manchester)

  • A. C. Akpanta

    (Abia State University)

  • J. Ohakwe

    (Federal University Otuoke)

  • D. C. Chikezie

    (Abia State University)

  • C. U. Onyemachi

    (Abia State University)

  • M. C. Ugwu

    (University of Nigeria)

Abstract

For the first time, a more detailed statistical analysis of the dependence across Nigeria inflation, exchange rate, and stock market returns is provided by means of copulas. A positive relationship is found to exist between Nigeria inflation and the exchange rate of Nigeria Naira versus USD, a negligible positive relationship exists between Nigeria inflation and her stock market returns, and a weak positive relationship exists between the exchange rate of Nigeria Naira versus USD and her stock market returns. Eighteen months forecast for each of the time series and the value at risk estimates for the Nigeria stock market returns are given. The Nigeria stock market is confirmed to be weak form inefficient.

Suggested Citation

  • 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.
    • Handle: RePEc:spr:aodasc:v:8:y:2021:i:2:d:10.1007_s40745-019-00206-7
    DOI: 10.1007/s40745-019-00206-7
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s40745-019-00206-7
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1007/s40745-019-00206-7?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. 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.
    2. Carole Bernard & Claudia Czado, 2013. "Multivariate option pricing using copulae," Applied Stochastic Models in Business and Industry, John Wiley & Sons, vol. 29(5), pages 509-526, September.
    3. Nelson, Charles R, 1976. "Inflation and Rates of Return on Common Stocks," Journal of Finance, American Finance Association, vol. 31(2), pages 471-483, May.
    4. Hobæk Haff, Ingrid & Aas, Kjersti & Frigessi, Arnoldo, 2010. "On the simplified pair-copula construction -- Simply useful or too simplistic?," Journal of Multivariate Analysis, Elsevier, vol. 101(5), pages 1296-1310, May.
    5. Kaul, Gautam, 1987. "Stock returns and inflation : The role of the monetary sector," Journal of Financial Economics, Elsevier, vol. 18(2), pages 253-276, June.
    6. Claudiu Tiberiu Albulescu & Christian Aubin & Daniel Goyeau, 2017. "Stock prices, inflation and inflation uncertainty in the U.S.: testing the long-run relationship considering Dow Jones sector indexes," Applied Economics, Taylor & Francis Journals, vol. 49(18), pages 1794-1807, April.
    7. Ding, Zhuanxin & Granger, Clive W. J. & Engle, Robert F., 1993. "A long memory property of stock market returns and a new model," Journal of Empirical Finance, Elsevier, vol. 1(1), pages 83-106, June.
    8. Paul H. Kupiec, 1995. "Techniques for verifying the accuracy of risk measurement models," Finance and Economics Discussion Series 95-24, Board of Governors of the Federal Reserve System (U.S.).
    9. D. Ventosa-Santaulària, 2009. "Spurious Regression," Journal of Probability and Statistics, Hindawi, vol. 2009, pages 1-27, August.
    10. Martin Feldstein, 1983. "Inflation and the Stock Market," NBER Chapters, in: Inflation, Tax Rules, and Capital Formation, pages 186-198, National Bureau of Economic Research, Inc.
    11. Fama, Eugene F, 1981. "Stock Returns, Real Activity, Inflation, and Money," American Economic Review, American Economic Association, vol. 71(4), pages 545-565, September.
    12. Fama, Eugene F. & Schwert, G. William, 1977. "Asset returns and inflation," Journal of Financial Economics, Elsevier, vol. 5(2), pages 115-146, November.
    13. Bodie, Zvi, 1976. "Common Stocks as a Hedge against Inflation," Journal of Finance, American Finance Association, vol. 31(2), pages 459-470, May.
    14. Geske, Robert & Roll, Richard, 1983. "The Fiscal and Monetary Linkage between Stock Returns and Inflation," Journal of Finance, American Finance Association, vol. 38(1), pages 1-33, March.
    15. Phillips, P.C.B., 1986. "Understanding spurious regressions in econometrics," Journal of Econometrics, Elsevier, vol. 33(3), pages 311-340, December.
    16. Schwert, G William, 1990. "Stock Volatility and the Crash of '87," The Review of Financial Studies, Society for Financial Studies, vol. 3(1), pages 77-102.
    17. I. D. Hill, 1973. "The Normal Integral," Journal of the Royal Statistical Society Series C, Royal Statistical Society, vol. 22(3), pages 424-427, November.
    18. Dornbusch, Rudiger & Fischer, Stanley, 1980. "Exchange Rates and the Current Account," American Economic Review, American Economic Association, vol. 70(5), pages 960-971, December.
    19. Orawan Ratanapakorn & Subhash Sharma, 2007. "Dynamic analysis between the US stock returns and the macroeconomic variables," Applied Financial Economics, Taylor & Francis Journals, vol. 17(5), pages 369-377.
    20. Bollerslev, Tim, 1986. "Generalized autoregressive conditional heteroskedasticity," Journal of Econometrics, Elsevier, vol. 31(3), pages 307-327, April.
    21. Aas, Kjersti & Czado, Claudia & Frigessi, Arnoldo & Bakken, Henrik, 2009. "Pair-copula constructions of multiple dependence," Insurance: Mathematics and Economics, Elsevier, vol. 44(2), pages 182-198, April.
    22. Jakob Madsen, 2007. "Pitfalls in estimates of the relationship between stock returns and inflation," Empirical Economics, Springer, vol. 33(1), pages 1-21, July.
    23. Adelchi Azzalini, 2005. "The Skew‐normal Distribution and Related Multivariate Families," Scandinavian Journal of Statistics, Danish Society for Theoretical Statistics;Finnish Statistical Society;Norwegian Statistical Association;Swedish Statistical Association, vol. 32(2), pages 159-188, June.
    24. Babajide Fowowe, 2015. "The relationship between stock prices and exchange rates in South Africa and Nigeria: structural breaks analysis," International Review of Applied Economics, Taylor & Francis Journals, vol. 29(1), pages 1-14, January.
    25. Brechmann, Eike Christian & Schepsmeier, Ulf, 2013. "Modeling Dependence with C- and D-Vine Copulas: The R Package CDVine," Journal of Statistical Software, Foundation for Open Access Statistics, vol. 52(i03).
    26. Gavin, Michael, 1989. "The stock market and exchange rate dynamics," Journal of International Money and Finance, Elsevier, vol. 8(2), pages 181-200, June.
    27. Boudoukh, Jacob & Richardson, Matthew, 1993. "Stock Returns and Inflation: A Long-Horizon Perspective," American Economic Review, American Economic Association, vol. 83(5), pages 1346-1355, December.
    28. Yuxi Tao & Junlin Liu & Zhihui Li & Jinguan Lin & Tao Lu & Fangrong Yan, 2013. "Dose-Finding Based on Bivariate Efficacy-Toxicity Outcome Using Archimedean Copula," PLOS ONE, Public Library of Science, vol. 8(11), pages 1-6, November.
    29. Bera, Anil K & Higgins, Matthew L, 1993. "ARCH Models: Properties, Estimation and Testing," Journal of Economic Surveys, Wiley Blackwell, vol. 7(4), pages 305-366, December.
    30. Andreas Humpe & Peter Macmillan, 2009. "Can macroeconomic variables explain long-term stock market movements? A comparison of the US and Japan," Applied Financial Economics, Taylor & Francis Journals, vol. 19(2), pages 111-119.
    31. Charles Kwofie & Richard Kwame Ansah, 2018. "A Study of the Effect of Inflation and Exchange Rate on Stock Market Returns in Ghana," International Journal of Mathematics and Mathematical Sciences, Hindawi, vol. 2018, pages 1-8, March.
    32. Engle, Robert F, 1982. "Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation," Econometrica, Econometric Society, vol. 50(4), pages 987-1007, July.
    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. Fassil Eshetu & Nega Eshetu, 2023. "Impact of Exchange Rate on Ethiopian Trade Balance: Evidence from ARDL Model," Annals of Data Science, Springer, vol. 10(5), pages 1217-1236, October.

    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. Sellin, Peter, 1998. "Monetary Policy and the Stock Market: Theory and Empirical Evidence," Working Paper Series 72, Sveriges Riksbank (Central Bank of Sweden).
    2. Harjoat S. Bhamra & Christian Dorion & Alexandre Jeanneret & Michael Weber, 2018. "Low Inflation: High Default Risk AND High Equity Valuations," NBER Working Papers 25317, National Bureau of Economic Research, Inc.
    3. Paul Alagidede & Theodore Panagiotidis, 2010. "Can common stocks provide a hedge against inflation? Evidence from African countries," Review of Financial Economics, John Wiley & Sons, vol. 19(3), pages 91-100, August.
    4. 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.
    5. Peter Sellin, 2001. "Monetary Policy and the Stock Market: Theory and Empirical Evidence," Journal of Economic Surveys, Wiley Blackwell, vol. 15(4), pages 491-541, September.
    6. Claudiu Tiberiu Albulescu & Christian Aubin & Daniel Goyeau, 2017. "Stock prices, inflation and inflation uncertainty in the U.S.: testing the long-run relationship considering Dow Jones sector indexes," Applied Economics, Taylor & Francis Journals, vol. 49(18), pages 1794-1807, April.
    7. Somayeh Madadpour & Mohsen Asgari, 2019. "The puzzling relationship between stocks return and inflation: a review article," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 66(2), pages 115-145, June.
    8. Geraldine Ryan, 2006. "Irish stock returns and inflation: a long span perspective," Applied Financial Economics, Taylor & Francis Journals, vol. 16(9), pages 699-706.
    9. Arnold, Stephan & Auer, Benjamin R., 2015. "What do scientists know about inflation hedging?," The North American Journal of Economics and Finance, Elsevier, vol. 34(C), pages 187-214.
    10. Bampinas, Georgios & Panagiotidis, Theodore, 2016. "Hedging inflation with individual US stocks: A long-run portfolio analysis," The North American Journal of Economics and Finance, Elsevier, vol. 37(C), pages 374-392.
    11. Steven A. Sharpe, 1999. "Stock prices, expected returns, and inflation," Finance and Economics Discussion Series 1999-02, Board of Governors of the Federal Reserve System (U.S.).
    12. Solnik, Bruno & Solnik, Vincent, 1997. "A multi-country test of the Fisher model for stock returns," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 7(4), pages 289-301, December.
    13. Niyati Bhanja & Arif Billah Dar, 2019. "Stock returns and inflation: a tale of two periods in India," Economic Change and Restructuring, Springer, vol. 52(4), pages 413-438, November.
    14. Claudiu Albulescu & Christian Aubin & Daniel Goyeau, 2016. "Stock prices, inflation and inflation uncertainty in the U.S.: Testing the long-run relationship considering Dow Jones sector indexes," Papers 1603.01231, arXiv.org.
    15. Tiwari Aviral Kumar & Cunado Juncal & Gupta Rangan & Wohar Mark E., 2019. "Are stock returns an inflation hedge for the UK? Evidence from a wavelet analysis using over three centuries of data," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 23(3), pages 1-17, June.
    16. Adel A. Al-Sharkas & Marwan Al-Zoubi, 2011. "Stock Prices and Inflation: Evidence from Jordan, Saudi Arabia, Kuwait, and Morocco," Working Papers 653, Economic Research Forum, revised 12 Jan 2011.
    17. Mirza Muhammad Naseer & Muhammad Asif Khan & József Popp & Judit Oláh, 2021. "Firm, Industry and Macroeconomics Dynamics of Stock Returns: A Case of Pakistan Non-Financial Sector," JRFM, MDPI, vol. 14(5), pages 1-18, April.
    18. Choudhry, Taufiq, 2001. "Inflation and rates of return on stocks: evidence from high inflation countries," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 11(1), pages 75-96, March.
    19. Dirk Brounen & Piet Eichholtz & Stefan Staetmans & Marcel Theebe, 2014. "Inflation Protection from Homeownership: Long-Run Evidence, 1814–2008," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 42(3), pages 662-689, September.
    20. Du, Ding, 2006. "Monetary policy, stock returns and inflation," Journal of Economics and Business, Elsevier, vol. 58(1), pages 36-54.

    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:spr:aodasc:v:8:y:2021:i:2:d:10.1007_s40745-019-00206-7. 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: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    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.