article · Journal of International Trade & Economic Development
An analysis of Nigerian stock market data from January 1995 to December 2019 assesses how crude oil price fluctuations and exchange rates affect equity performance. Linear testing indicates that crude oil prices maintain a positive relationship with stock market performance across both the short and long run. In contrast, exchange rates exhibit a positive effect in the short run but become insignificant over the long run. When examining non-linear dynamics, both positive and negative shocks to crude oil prices exert a significant increasing effect on equity performance. Market responses to negative oil price movements are stronger than responses to positive shifts. Furthermore, exchange rates demonstrate an insignificant relationship with stock performance in non-linear asymmetric tests across all time horizons.
Understanding how commodity shifts influence domestic equities helps institutional investors and policymakers manage financial risks. Because the Nigerian stock market reacts asymmetrically to oil price fluctuations, responding more intensely to downward shocks, tracking energy market volatility is essential for designing resilient investment portfolios and protecting local capital markets from external economic disruption.
Portfolio managers, asset management firms, and institutional investors can apply these insights to refine risk-return models and guide international equity diversification strategies. The work represents applied financial research based on historical data, offering analytical inputs for quantitative investment algorithms and risk management frameworks rather than a direct commercial product.
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This study explores the linear and non-linear impact of Nigeria's oil price and exchange rate on stock market performance from January 1995 to December 2019 using the non-linear autoregressive distributed lag (NARDL) method. The results from the linear ARDL show a long and short-run positive relationship between the Nigerian stock market and crude oil prices while, the exchange rate show an insignificant in the long-run effect but a significant positive relationship in the short run. The non-linear ARDL front, the tests show that the impact of positive shocks in crude oil price has a significant increasing effect on stock market performance in Nigeria, while negative shocks in crude oil prices have a significant increasing effect on stock market performance. The exchange rate has an insignificant relationship with stock market performance both in short- and long-run asymmetric test. The adjustment asymmetry from the dynamic multiplier graphs shows that the response of stock market performance to a negative change in oil price is stronger than that in response to a positive change. Overall, the result provides the need to diversify investment portfolios through the international equity market, keeping a close watch on the oil price fluctuation which is of importance in formulating risk–return portfolios of stock market performance.
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DOI: 10.1080/09638199.2021.1918223
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