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The nexus between stock price and foreign exchange rate: validating the portfolio-balance model in Nigeria

Author

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  • Patrick Olufemi Adeyeye
  • Olufemi Adewale Aluko
  • Stephen Oseko Migiro

Abstract

The relationship between stock price and foreign exchange (forex) rate has been a controversial issue over the years. This study examines the nexus between stock prices and forex rates in Nigeria from January 1985 to December 2014. It applies the Johansen co-integration, Toda-Yamamoto Granger non-causality and correlation tests. The empirical results reveal that there is presence of co-integration between stock prices and forex rates and unidirectional causality from forex rates to stock prices with positive correlation. This study did not validate the proposition of the portfolio-balance model in Nigeria but it provides substantiated evidence in favour of the traditional-flow model.

Suggested Citation

  • Patrick Olufemi Adeyeye & Olufemi Adewale Aluko & Stephen Oseko Migiro, 2017. "The nexus between stock price and foreign exchange rate: validating the portfolio-balance model in Nigeria," Afro-Asian Journal of Finance and Accounting, Inderscience Enterprises Ltd, vol. 7(4), pages 363-377.
    • Handle: RePEc:ids:afasfa:v:7:y:2017:i:4:p:363-377
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    Citations

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    Cited by:

    1. Pavitra Dhamija, 2020. "Economic Development and South Africa: 25 Years Analysis (1994 to 2019)," South African Journal of Economics, Economic Society of South Africa, vol. 88(3), pages 298-322, September.
    2. Anthony Olugbenga ADARAMOLA & Peter Akinyemi KAYODE, 2022. "Is Monetary Policy - Stock Price Behaviour Effect Sector-Sensitive? Evidence From Nigeria," Contemporary Economy Journal, Constantin Brancoveanu University, vol. 7(3), pages 171-193.
    3. Peter Arhenful & Richard Fosu & Mathew Owusu-Mensah, 2022. "Exchange Rate and Stock Price Nexus: Evidence from Ghana," Journal of Social and Development Sciences, AMH International, vol. 12(4), pages 9-15.

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