Abstract
This present study examines the volatility effects of the oil price on the stock price returns in Nigeria from the period of 2000M(12) to 2020M(4) on a monthly data using both standard GARCH and non-linear GARCH models. The motivation for the present study is the recent fall in the global oil price of Brent Crude to US$15.25 per barrel due to the outbreak of the Corona Virus (COVID-19). Consequentially, the Nigerian stock market (NSE) responded with a fall of 4172 point or by a fall of 15.53%. After establishing the presence of heteroscedasticity through the ARCH test and volatility clustering through the returns, the outcome of the study contributes to knowledge by providing financial information and signals to investors about the best GARCH model response to proactively and successfully use to model global oil price shocks so as to reduce financial risk in Nigeria’s stock market.
Highlights
Oil price changes have been known to have direct impact on stock market returns depending whether the affected country is an oil-exporting or importing country [1–4]
In this study we examined the volatility effects of oil price behavior on stock price in Nigeria from the first month of year 2000 to the fourth month of year 2020 using both standard and asymmetric GARCH
Before performing the GARCH, Threshold GARCH (TGARCH) and exponential GARCH (EGARCH), we carried out some preliminary tests such as the ARCH tests for heteroscedasticity, unit root test for stationary test and all the tests show evidence of volatility clustering which necessitate the use of GARCH process on the variables
Summary
Oil price changes have been known to have direct impact on stock market returns depending whether the affected country is an oil-exporting or importing country [1–4]. Linear and Non-Linear Financial Econometrics - Theory and Practice an oil dependent economy due to fall in the global oil price This is usually due to the investors’ perception that they may suffer huge financial loss if their investments are not quickly moved. The stock market is so sensitive and important that it serves as long term funds for investment, businesses, financial institutions, private and the public It is such that investors are much more concerned about the volatility of their returns in terms of gain and losses. Since oil price volatility has been the major source of uncertainty in stock market returns especially in an oil-dependent economy like the sample country, it is imperative to study their relationships.
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Free) 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a call
