Effect of Oil Price Movement on Stock Prices in the Nigerian Equity Market

Abstract

This paper studies the relationship between oil prices and stock prices in the Nigerian equity market using a forecasting framework. The study was driven by the need to determine if the extreme volatility observed in oil prices has any significant impact on the stock price movement of a major oil exporting economy like the Nigeria. By establishing the presence of a significant relationship between these variables, investors and policymakers alike could use oil prices as a leading indicator in producing more accurate projections of stock prices. While the results of this study recorded no cointegration between stock prices and oil prices, the use of an ARIMA and a structural-ARIMA model showed that oil price is a significant exogenous variable which could improve the accuracy of stock price prediction in the Nigerian stock market by an extent.

Keywords: Oil prices, stock market predictability, Nigerian Stock Exchange.