Abstract
The inconclusiveness of findings from various studies on Nigeria on the effect of crude oil price fluctuation on the stock market has led to an argument in literature, thus necessitating further exploration of the subject. This study examines the effect of variations in the price of crude oil on selected stock market performance variables in Nigeria using monthly frequency data covering January 1997 to December 2016. Variance decomposition, impulse response analysis, and VAR estimations were employed for the study. The results reveal that oil price variations are slowly transmitted in some stock market performance variables. The findings indicate that the effect of crude oil price fluctuations in the Nigerian stock market is greatly minimized and does not sufficiently account for market activities. Keywords: Emerging Economy, Nigeria, Oil Price Shocks, Stock Market, VAR. JEL Classifications: C25, Q47, F4 DOI: https://doi.org/10.32479/ijeep.10140
Highlights
This study aims to examine whether fluctuations in crude oil price impact on stock market performance in developing economy from January 1997 to December 2016
Market capitalization and several deals exhibited high variability during the period. The innovation in these selected stock market variables in Nigeria has been fueled by the unstable money supply regimes and the frequent movements in the international oil price
This study examined the effect of oil price shock on selected performance variables in the Nigerian stock market
Summary
This study aims to examine whether fluctuations in crude oil price impact on stock market performance in developing economy from January 1997 to December 2016. Nigeria is used as a proxy for developing economies because she is the sixth largest member of OPEC and the largest net exporter of crude oil in Africa and a highly promising economy for international portfolio diversification. The production process uses crude oil as an essential raw material. The cash flow of producing firms will be affected by an increase in raw material required in the production process. Considering the producer (exporter) and consumer (importer) nature of Nigeria, an increase in oil prices will likely affect the cash flow of companies and individuals. Investigating the effect of oil price movements on the stock market performance is a study worth engaging
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