IDEAS home Printed from https://ideas.repec.org/p/cui/wpaper/0046.html
   My bibliography  Save this paper

Exchange Rate Movements on Sectoral Stock Prices of Nigerian Firms: Is there Evidence of Asymmetry?

Author

Listed:
  • Lateef O. Akanni

    (Department of Economics, University of Lagos,Akoka, Lagos, Nigeria)

  • Kazeem Isah

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

Abstract

Using firm-level weekly closing stock prices of Nigerian firms, this study gives a new insight into the possible asymmetry in exchange rate and stock prices relationship. The Linear ARDL (Pesaran et al., 2001) and Non-Linear ARDL (Shin et al., 2014) framework are adapted into panel data form to explore the responses of stock prices to exchange rate movements. Exchange rate is measured using Naira exchange value to US Dollar for the main analysis while Naira to Britain Pound Sterling is used for robustness check. Findings from the empirical analyses suggest that the relationship between exchange rate and stock prices is largely symmetry for most of the firms, except those in few sectors like conglomerates, consumer goods and financial services. Thus, this result supports empirical arguments that exposure of stock prices of firms in developing countries to exchange rate is identical in the long-run regardless of whether the domestic currency appreciates or depreciates.

Suggested Citation

  • Lateef O. Akanni & Kazeem Isah, 2018. "Exchange Rate Movements on Sectoral Stock Prices of Nigerian Firms: Is there Evidence of Asymmetry?," Working Papers 046, Centre for Econometric and Allied Research, University of Ibadan.
    • Handle: RePEc:cui:wpaper:0046
    as

    Download full text from publisher

    File URL: http://cear.org.ng/index.php?option=com_docman&task=doc_download&gid=91&Itemid=29
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Hoang, Thi Hong Van & Lahiani, Amine & Heller, David, 2016. "Is gold a hedge against inflation? New evidence from a nonlinear ARDL approach," Economic Modelling, Elsevier, vol. 54(C), pages 54-66.
    2. Baltagi, Badi H. & Feng, Qu & Kao, Chihwa, 2012. "A Lagrange Multiplier test for cross-sectional dependence in a fixed effects panel data model," Journal of Econometrics, Elsevier, vol. 170(1), pages 164-177.
    3. Chkili, Walid & Nguyen, Duc Khuong, 2014. "Exchange rate movements and stock market returns in a regime-switching environment: Evidence for BRICS countries," Research in International Business and Finance, Elsevier, vol. 31(C), pages 46-56.
    4. M. Hashem Pesaran, 2007. "A simple panel unit root test in the presence of cross-section dependence," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 22(2), pages 265-312.
    5. Issam Abdalla & Victor Murinde, 1997. "Exchange rate and stock price interactions in emerging financial markets: evidence on India, Korea, Pakistan and the Philippines," Applied Financial Economics, Taylor & Francis Journals, vol. 7(1), pages 25-35.
    6. M. Hashem Pesaran, 2021. "General diagnostic tests for cross-sectional dependence in panels," Empirical Economics, Springer, vol. 60(1), pages 13-50, January.
    7. Mohsen Bahmani-Oskooee & Sahar Bahmani, 2015. "Nonlinear ARDL Approach and the Demand for Money in Iran," Economics Bulletin, AccessEcon, vol. 35(1), pages 381-391.
    8. Apergis, Nicholas & Rezitis, Anthony, 2001. "Asymmetric Cross-Market Volatility Spillovers: Evidence from Daily Data on Equity and Foreign Exchange Markets," Manchester School, University of Manchester, vol. 69(0), pages 81-96, Supplemen.
    9. Gamini Premaratne & Prabhath Jayasinghe, 2005. "Exchange rate exposure of stock returns at firm level," International Finance 0503004, University Library of Munich, Germany.
    10. Chow, Edward H & Lee, Wayne Y & Solt, Michael E, 1997. "The Exchange-Rate Risk Exposure of Asset Returns," The Journal of Business, University of Chicago Press, vol. 70(1), pages 105-123, January.
    11. Bartram, Sohnke M., 2004. "Linear and nonlinear foreign exchange rate exposures of German nonfinancial corporations," Journal of International Money and Finance, Elsevier, vol. 23(4), pages 673-699, June.
    12. Dornbusch, Rudiger & Fischer, Stanley, 1980. "Exchange Rates and the Current Account," American Economic Review, American Economic Association, vol. 70(5), pages 960-971, December.
    13. Cuestas Juan Carlos & Tang Bo, 2017. "Asymmetric exchange rate exposure of stock returns: empirical evidence from Chinese industries," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 21(4), pages 1-21, September.
    14. Bahmani-Oskooee, Mohsen & Saha, Sujata, 2016. "Do exchange rate changes have symmetric or asymmetric effects on stock prices?," Global Finance Journal, Elsevier, vol. 31(C), pages 57-72.
    15. Mohsen Bahmani-oskooee & Hadise Fariditavana, 2014. "Do Exchange Rate Changes have Symmetric Effect on the S-Curve?," Economics Bulletin, AccessEcon, vol. 34(1), pages 164-173.
    16. Maddala, G S & Wu, Shaowen, 1999. "A Comparative Study of Unit Root Tests with Panel Data and a New Simple Test," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 61(0), pages 631-652, Special I.
    17. Phylaktis, Kate & Ravazzolo, Fabiola, 2005. "Stock prices and exchange rate dynamics," Journal of International Money and Finance, Elsevier, vol. 24(7), pages 1031-1053, November.
    18. Nicholas Apergis & Anthony Rezitis, 2001. "Asymmetric Cross‐market Volatility Spillovers: Evidence from Daily Data on Equity and Foreign Exchange Markets," Manchester School, University of Manchester, vol. 69(s1), pages 81-96.
    19. Rafael E. De Hoyos & Vasilis Sarafidis, 2006. "Testing for cross-sectional dependence in panel-data models," Stata Journal, StataCorp LP, vol. 6(4), pages 482-496, December.
    20. Walid Chkili & Duc Khuong Nguyen, 2011. "Modeling the volatility of Mediterranean stock markets: a regime-switching approach," Economics Bulletin, AccessEcon, vol. 31(2), pages 1105-1113.
    21. Mohsen Bahmani-Oskooee & Sujata Saha, 2015. "On the relation between stock prices and exchange rates: a review article," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 42(4), pages 707-732, September.
    22. Thi Hong Van Hoang & Amine Lahiani & David Heller, 2016. "Is gold a hedge against inflation? New evidence from a nonlinear ARDL approach," Post-Print hal-02012307, HAL.
    23. Douglas Wong & Kui-Wai Li, 2010. "Comparing the performance of relative stock return differential and real exchange rate in two financial crises," Applied Financial Economics, Taylor & Francis Journals, vol. 20(1-2), pages 137-150.
    24. Chaker Aloui, 2007. "Price and volatility spillovers between exchange rates and stock indexes for the pre- and post-euro period," Quantitative Finance, Taylor & Francis Journals, vol. 7(6), pages 669-685.
    25. Gavin, Michael, 1989. "The stock market and exchange rate dynamics," Journal of International Money and Finance, Elsevier, vol. 8(2), pages 181-200, June.
    26. Hsu, Chih-Chiang & Yau, Ruey & Wu, Jyun-Yi, 2009. "Asymmetric Exchange Rate Exposure and Industry Characteristics : Evidence from Japanese Data," Hitotsubashi Journal of Economics, Hitotsubashi University, vol. 50(1), pages 57-69, June.
    27. Koutmos, Gregory & Martin, Anna D., 2003. "Asymmetric exchange rate exposure: theory and evidence," Journal of International Money and Finance, Elsevier, vol. 22(3), pages 365-383, June.
    28. Moore, Tomoe & Wang, Ping, 2014. "Dynamic linkage between real exchange rates and stock prices: Evidence from developed and emerging Asian markets," International Review of Economics & Finance, Elsevier, vol. 29(C), pages 1-11.
    29. Pan, Ming-Shiun & Fok, Robert Chi-Wing & Liu, Y. Angela, 2007. "Dynamic linkages between exchange rates and stock prices: Evidence from East Asian markets," International Review of Economics & Finance, Elsevier, vol. 16(4), pages 503-520.
    30. G. S. Maddala & Shaowen Wu, 1999. "A Comparative Study of Unit Root Tests with Panel Data and a New Simple Test," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 61(S1), pages 631-652, November.
    31. Diamandis, Panayiotis F. & Drakos, Anastassios A., 2011. "Financial liberalization, exchange rates and stock prices: Exogenous shocks in four Latin America countries," Journal of Policy Modeling, Elsevier, vol. 33(3), pages 381-394, May.
    32. Franke, Gunter, 1991. "Exchange rate volatility and international trading strategy," Journal of International Money and Finance, Elsevier, vol. 10(2), pages 292-307, June.
    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. Muhammed Benli & Sedat Durmuskaya & Gokberk Bayramoglu, 2019. "Asymmetric exchange rate pass-through and sectoral stock price indices: Evidence from Turkey," International Journal of Business and Management, International Institute of Social and Economic Sciences, vol. 7(1), pages 25-47, May.
    2. 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.

    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. Salisu, Afees A., 2019. "United we stand, divided we fall: A PANICCA test evidence for stock exchanges in OECD," Finance Research Letters, Elsevier, vol. 28(C), pages 343-347.
    2. 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.
    3. 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).
    4. 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.
    5. Bahmani-Oskooee, Mohsen & Saha, Sujata, 2016. "Do exchange rate changes have symmetric or asymmetric effects on stock prices?," Global Finance Journal, Elsevier, vol. 31(C), pages 57-72.
    6. Andrew Phiri, 2020. "Structural changes in exchange rate-stock returns dynamics in South Africa: examining the role of crisis and new trading platform," Economic Change and Restructuring, Springer, vol. 53(1), pages 171-193, February.
    7. Afees A. Salisu & Kazeem Isah & Nnenna Ogbonnaya‐Orji, 2022. "A firm level analysis of asymmetric response of U.S. stock returns to exchange rate movements," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(1), pages 1220-1239, January.
    8. 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.
    9. Reboredo, Juan C. & Rivera-Castro, Miguel A. & Ugolini, Andrea, 2016. "Downside and upside risk spillovers between exchange rates and stock prices," Journal of Banking & Finance, Elsevier, vol. 62(C), pages 76-96.
    10. Lin, Jeng-Bau & Fu, Shan-Heng, 2016. "Investigating the dynamic relationships between equity markets and currency markets," Journal of Business Research, Elsevier, vol. 69(6), pages 2193-2198.
    11. Salah A. Nusair & Jamal A. Al-Khasawneh, 2022. "On the relationship between Asian exchange rates and stock prices: a nonlinear analysis," Economic Change and Restructuring, Springer, vol. 55(1), pages 361-400, February.
    12. Mehmet PEKKAYA & Ersin AÇIKGÖZ & Veli YILANCI, 2017. "Panel causality analysis between exchange rates and stock indexes for fragile five," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(2(611), S), pages 33-44, Summer.
    13. Mostafa Ali & Gang Sun, 2017. "Dynamic Relations between Stock Price and Exchange Rate: Evidence from South Asia," International Journal of Economics and Financial Issues, Econjournals, vol. 7(3), pages 331-341.
    14. Chkili, Walid & Nguyen, Duc Khuong, 2014. "Exchange rate movements and stock market returns in a regime-switching environment: Evidence for BRICS countries," Research in International Business and Finance, Elsevier, vol. 31(C), pages 46-56.
    15. Eleftherios Thalassinos & Marta Kadłubek & Le Minh Thong & Tran Van Hiep & Erginbay Ugurlu, 2022. "Managerial Issues Regarding the Role of Natural Gas in the Transition of Energy and the Impact of Natural Gas Consumption on the GDP of Selected Countries," Resources, MDPI, vol. 11(5), pages 1-22, April.
    16. Muhammad Aftab & Abid Ali & Scott W. Hegerty, 2021. "Foreign exchange market pressure and stock market dynamics in emerging Asia," International Economics and Economic Policy, Springer, vol. 18(4), pages 699-719, October.
    17. Walid, Chkili & Chaker, Aloui & Masood, Omar & Fry, John, 2011. "Stock market volatility and exchange rates in emerging countries: A Markov-state switching approach," Emerging Markets Review, Elsevier, vol. 12(3), pages 272-292, September.
    18. Muhammad Azam & Zia Ur Rehman & Yusnidah Ibrahim, 2022. "Causal nexus in industrialization, urbanization, trade openness, and carbon emissions: empirical evidence from OPEC economies," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 24(12), pages 13990-14010, December.
    19. Muhammad Aftab & Rubi Ahmad & Izlin Ismail & Kate Phylaktis, 2021. "Economic integration and the currency and equity markets nexus," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(4), pages 5278-5301, October.
    20. Christos Kollias & Stephanos Papadamou & Costas Siriopoulos, 2016. "Stock markets and effective exchange rates in European countries: threshold cointegration findings," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 6(2), pages 215-274, August.

    More about this item

    Keywords

    Exchange rate; Stock prices; Asymmetry; Panel ARDL; Non-linear ARDL;
    All these keywords.

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

    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:cui:wpaper:0046. 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: Adeoye Omosebi (email available below). General contact details of provider: https://edirc.repec.org/data/ceuibng.html .

    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.