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Stock Market and Exchange Rate Interactions in Nigeria: A Cointegration with Structural Break Analysis

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  • Kenechukwu J. Nwisienyi

    (School of Financial Studies, Department of Banking and Finance,Federal Polytechnic Oko, Anambra State Nigeria)

  • Onyeka A. Obi

    (School of Financial Studies, Department of Banking and Finance,Federal Polytechnic Oko, Anambra State Nigeria)

Abstract

The study investigated the relationship between stock market movement and exchange rate in Nigeria using a monthly time series data for the periods 2008M1 to 2019M12. The Lee Strazicich (2003) LM unit root test and the Hatemi-J (2008) cointegration test, all allowing for the presence of more than one endogenously determined structural break, were applied to examine the stationarity and the long-run relationship of the variables respectively. The result showed the presence of two structural breaks in 2009M11 and 2011M2 following the Zt statistics of the Hatemi J. cointegration test and that there is no cointegration among the variables as reported by all the test statistics (ADF, Zt and Za) of the same cointegration test. The short-run model shows a statistically significant positive relationship between the stock market and exchange rate at lag 2 which indicates that the impact of short-run exchange rate movements of previous 2 months has a significant impact on the Nigerian stock market returns. All other variables are not influential in the short run as they returned statistically insignificant. Finally, the Pairwise Granger causality test showed no form of directional causality amongst the variables. This negates the flow and stock-oriented models.

Suggested Citation

  • Kenechukwu J. Nwisienyi & Onyeka A. Obi, 2020. "Stock Market and Exchange Rate Interactions in Nigeria: A Cointegration with Structural Break Analysis," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 4(10), pages 289-295, October.
    • Handle: RePEc:bcp:journl:v:4:y:2020:i:10:p:289-295
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    References listed on IDEAS

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