Stock prices and exchange rate dynamics in Nigeria: An asymmetric perspective

Ekpeno Effiong and Godwin E. Bassey

The Journal of International Trade & Economic Development, 2019, vol. 28, issue 3, 299-316

Abstract: This paper investigates the asymmetric effect of exchange rate changes on stock prices in Nigeria. Using the nonlinear ARDL framework and monthly data from 2000:1 to 2016:12, the nominal exchange rate is separated into currency depreciation and appreciation through a partial sum decomposition process. Asymmetry is examined both in the long-run relationship and short-run error correction mechanism. The results show that the effects of exchange rate changes on stock prices is asymmetric both in the short- and long-run. That is, stock prices react in different magnitude to depreciation and appreciation. However, currency depreciation has a strong pass-through effect on stock prices than appreciation in the long-run. In the absence of asymmetry, exchange rate has only short-run effect on stock prices. This implies that the symmetry assumption underestimates the impact of exchange rate changes on stock prices in Nigeria.

Date: 2019
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DOI: 10.1080/09638199.2018.1531436

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