The nexus between stock price and foreign exchange rate: validating the portfolio-balance model in Nigeria

Patrick Olufemi Adeyeye, Olufemi Adewale Aluko and Stephen Oseko Migiro

Afro-Asian Journal of Finance and Accounting, 2017, vol. 7, issue 4, 363-377

Abstract: The relationship between stock price and foreign exchange (forex) rate has been a controversial issue over the years. This study examines the nexus between stock prices and forex rates in Nigeria from January 1985 to December 2014. It applies the Johansen co-integration, Toda-Yamamoto Granger non-causality and correlation tests. The empirical results reveal that there is presence of co-integration between stock prices and forex rates and unidirectional causality from forex rates to stock prices with positive correlation. This study did not validate the proposition of the portfolio-balance model in Nigeria but it provides substantiated evidence in favour of the traditional-flow model.

Keywords: stock prices; foreign exchange rates; portfolio-balance model; Toda-Yamamoto Granger non-causality test; Nigeria. (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:ids:afasfa:v:7:y:2017:i:4:p:363-377

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