Exchange Rate Volatility and Stock Market Behaviour: The Nigerian Experience

Abstract

This study examines the long-run and short-run effects of exchange rate on stock market development in Nigeria over 1985:12009:4 using the Johansen cointegration tests. A bi-variate model was specified and empirical results show a significant positive stock market performance to exchange rate in the short-run and a significant negative stock market performance to exchange rate in the long-run. The Granger causality test shows a strong evidence that the causation runs from exchange rate to stock market performance; implying that variations in the Nigerian stock market is explained by exchange rate volatility.

Keywords: Johansen Cointegration Tests; Granger Causality Test; Exchange Rate Volatility; Stock Market performance.