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The Relationship Between Oil Prices and the Nigerian Stock Market, an Analysis Based on Fractional Integration and Cointegration

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  • Luis A. Gil-Alana
  • OlaOluwa Simon Yaya

Abstract

This paper deals with the analysis of the relationship between oil prices and the stock market in Nigeria. We focus on measuring the degree of persistence of the series using long range dependence techniques, and based on the similarities observed between the two series, a fractionally cointegrated modeling framework is proposed. The results first indicate that the two series display a similar order of integration, which is close to, although above 1. Testing the hypothesis of cointegration, this is decisively rejected since the order of integration in the potential equilibrium relationship was similar to that of the parent individual series. However, testing a long memory model with oil prices acting as a weakly exogenous regressor, we obtained significant evidence of a positive relationship between the two variables though with a very short memory effect, this relation being significant only during the following three months.

Suggested Citation

  • Luis A. Gil-Alana & OlaOluwa Simon Yaya, 2014. "The Relationship Between Oil Prices and the Nigerian Stock Market, an Analysis Based on Fractional Integration and Cointegration," NCID Working Papers 04/2014, Navarra Center for International Development, University of Navarra.
  • Handle: RePEc:nva:unnvaa:wp04-2014
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    References listed on IDEAS

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    Cited by:

    1. Moses Tule & Afees A. Salisu & Charles Chimeke, 2018. "You are what you eat: The role of oil price in Nigeria inflation forecast," Working Papers 040, Centre for Econometric and Allied Research, University of Ibadan.
    2. Olusanya E. Olubusoye & OlaOluwa S. Yaya, 2016. "Time series analysis of volatility in the petroleum pricing markets: the persistence, asymmetry and jumps in the returns series," OPEC Energy Review, Organization of the Petroleum Exporting Countries, vol. 40(3), pages 235-262, September.
    3. repec:eee:finana:v:57:y:2018:i:c:p:148-156 is not listed on IDEAS
    4. repec:eee:eneeco:v:67:y:2017:i:c:p:255-267 is not listed on IDEAS
    5. Yaya, OlaOluwa S. & Tumala, Mohammed M. & Udomboso, Christopher G., 2016. "Volatility persistence and returns spillovers between oil and gold prices: Analysis before and after the global financial crisis," Resources Policy, Elsevier, vol. 49(C), pages 273-281.

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    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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