EMPIRICAL EVALUATION OF OIL PRICE VOLATILITY AND STOCK MARKET RETURNS IN NIGERIA

Abstract

The study is on empirical evaluation of the impact of oil prices volatility on stock market returns in Nigeria from 1986 to 2021. With the understanding that energy runs like a bloodstream of any business of which oil is a major source, it becomes imperative to explore the incessant oil price fluctuations and its effects on critical indicators of the economy like stock market performance. The objectives include to examine the patterns of oil price volatility and stock market returns in Nigeria, analyse the influence of oil price fluctuations
on Nigeria's economic growth, and investigate the causal relationship between oil price volatility and the stock market returns in Nigeria. Arbitrage Pricing Theory (APT) was employed as the framework while the methodology adopted the all-share indices (ASI) as the dependent variable, then, oil prices (OPRICE), exchange rate (EXCH), inflation rate (INFL), gross domestic growth rate (GDPGR), and interest rate (INT) as explanatory variables. Secondary data sourced from UNCTAD, etc. were analysed with aid of EVIEWS 2021. The Generalised Autoregressive Conditional Heteroscedasticity (GARCH) and Granger causality were the estimation techniques used. The study used unit root test to check the stationarity of the variables, the ARDL bound test to check for long-term relationships between the variables, and the ARDL model to estimate both short- and long-term relationships between the variables. A normality test revealed that the study's variables are all typical. Breuseeh-Gdfrey serial correlation revealed no association between the study's variables. The heteroscedasticity test showed there was no outlier’s effect on the output of the result. It was found that inflation and exchange rate volatility are positive and statistically significant; inflation and interest rate are equally positive related to private consumption during the period under investigation. It found out inflation, oil price, exchange rate, and real gross domestic product have positive effect on stock market performance in Nigeria. The work concludes oil price is a major determinant of economic growth in Nigeria. It was recommended that all brokerage firms and investment advisors need to conduct periodic research on macroeconomic environment and advise their clients accordingly on the best counters to invest in owing to the various influences by
macroeconomic environment on the stock market performance