Abstract
Modelling volatility interdependence between crude oil and foreign exchange markets returns provides useful insights into how information is transmitted from the crude oil market to the foreign exchange market and vice versa. This paper evaluates dynamic interdependence between crude oil and foreign exchange markets by applying Baba, Engle, Kraft and Kroner (1990) (BEKK) specifications to crude oil prices and Naira/USD exchange rates. Estimates from the BEKK-GARCH (1,1) model indicate evidence of unidirectional shock and volatility transmission from crude oil market to foreign exchange market in Nigeria. Evidence of unidirectional volatility transmission provides support for partial interdependence between the markets in Nigeria. This finding has important implications for financial risk management, foreign exchange market regulation and crude oil revenue management policy.
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