Modeling the Impact of Oil Price Shocks on Energy Sector Stock Returns: Evidence from Nigeria

Simeon Ebechidi () and Eleanya Nduka ()
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Simeon Ebechidi: University of Nigeria

Economics Bulletin, 2017, vol. 37, issue 4, 2574-2584

Abstract: This study examines the effect of oil price shocks on energy stock returns in Nigeria for the period from January, 2000 to December, 2015. The study employs the Augmented Dickey-Fuller (ADF) and Kwiatkowski-Phillips-Schmidt-Shin (KPSS) tests for Unit root and a General Autoregressive Conditional Heteroscedasticity (GARCH 1, 1) modeling approach. The mean equation reveals that if oil price increases by one percent, energy sector stock returns will decrease by 74%. If exchange rate increases by $1, energy sector stock returns increases by about 0.78%. Furthermore, a unit increase in interest rate differential will cause a decrease in energy sector stock returns by about 25%. On the other hand, results of the variance equation, which captures volatility, suggest that oil price shocks and energy stock returns are negatively related.

Keywords: Volatility; Stock; Oil; Returns; Heteroscedasticity; GARCH (search for similar items in EconPapers)
JEL-codes: C5 Q4 (search for similar items in EconPapers)
Date: 2017-11-19
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Citations: View citations in EconPapers (1)

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