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Stock Prices and Exchange Rate Interactions in Nigeria: An Intra-Global Financial Crisis Maiden Investigation

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Author Info
Aliyu, Shehu Usman Rano

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Abstract

This paper examined the long run and short run interactions between stock prices and exchange rate in Nigeria based on a sample from 1st February, 2001 to 31st December, 2008. Three models were derived from the sample, albeit pre-crisis, crisis and basic models. The paper set out by testing the time series properties of the series using the ADF and PP tests. In addition, the Engle and Granger two-step and Johansen and Juselius cointegration procedures were applied. Empirical results showed that all the series are I(1) and evidence of cointegration was established using the Johansen and Juselius methodology. Furthermore, causality tests revealed strong evidence of long run bidirectional relationship between stock prices and exchange rate in the models. Policy wise, the findings implied that monetary authorities in Nigeria are not constrained to take into account stock market development in achieving their exchange rate policy objective given the symbiotic nature of relationship between the two. The paper recommends measures that would promote greater stability and efficiency of the Nigeria’s foreign exchange market

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Publisher Info
Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 13283.

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Date of creation: 04 Feb 2009
Date of revision: 09 Feb 2009
Handle: RePEc:pra:mprapa:13283

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Related research
Keywords: Stock prices; exchange rate; Granger causality; cointegration and vector error correction.;

Find related papers by JEL classification:
G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements

This paper has been announced in the following NEP Reports:

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  1. Toda, Hiro Y. & Yamamoto, Taku, 1995. "Statistical inference in vector autoregressions with possibly integrated processes," Journal of Econometrics, Elsevier, vol. 66(1-2), pages 225-250. [Downloadable!] (restricted)
  2. Giovannini, Alberto & Jorion, Philippe, 1987. "Interest rates and risk premia in the stock market and in the foreign exchange market," Journal of International Money and Finance, Elsevier, vol. 6(1), pages 107-123, March. [Downloadable!] (restricted)
  3. Solnik, Bruno, 1987. " Using Financial Prices to Test Exchange Rate Models: A Note," Journal of Finance, American Finance Association, vol. 42(1), pages 141-49, March. [Downloadable!] (restricted)
  4. Kim, Ki-ho, 2003. "Dollar exchange rate and stock price: evidence from multivariate cointegration and error correction model," Review of Financial Economics, Elsevier, vol. 12(3), pages 301-313. [Downloadable!] (restricted)
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This page was last updated on 2009-12-1.

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