Abstract
The study analyses the symmetric and asymmetric impacts of exchange rate volatility and fluctuations, respectively on the capital market and financial sector in Nigeria. This analysis entails using monthly data from January 2010 to April 2018 and the autoregressive distributed lag (ARDL) bounds testing framework. The linear ARDL result shows that exchange rate volatility negatively but significantly impacts financial development and capital market in the short‐run and long‐run. Results of the asymmetric effect show that exchange rate depreciation negatively and insignificantly affects the capital market while exerting a significant positive impact on the financial market in both short‐run and long‐run at about 0.06 and 0.04% respectively for both sectors. However, currency appreciation positively influences the capital market at 1.23 and 0.66%, but negatively affects the financial sector at 0.09 and 0.02% in the short‐ and long‐run respectively. Thus, the study calls for effective public policy management since exchange rate volatility and currency depreciation pose a bad omen to the capital market. This entails public regulation of the key macroeconomic indicators by encouraging the central bank to maintain interest rates that are favorable toward expanding the productive capacity of private investors. Such policy can also be supported by providing affordable access to investment funds.
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