Impact of Oil Price Shocks on Stock Market Prices Volatility in Nigeria: New Evidence from a Non-linear ARDL Cointegration
This study examined the impact of oil price shocks on stock market prices volatility in Nigeria using non-linear cointegration approach labelled as Non-linear Autoregressive Distributed Lag (NARDL) which represents one of the major important contribution to the literature on the subject matter. The study was carried out using a quarterly data for the period of 1986 to 2016. The oil price shocks impact was disentangled or decomposed into oil supply shocks, oil demand shocks and oil specific demand shocks and the results from the empirical analysis revealed that, there is long run relationship among the variables and positive oil price shocks in its various forms which exert positive and significant impact on the volatility of stock prices in both long run and short run except for oil supply shock that have negative impact in the long run, while negative oil price shocks exert negative impact on the volatility of stock prices in both short and long run. However, the asymmetric result using Wald test shows that, the positive impact of these shocks on volatility of stock prices differs in both short run and long run. Therefore, the findings from the study affirmed the presence of nonlinear relationship between oil price shocks and stock prices volatility in Nigeria which is an indication that positive and negative oil price shocks affect stock prices volatility differently and this must be taking into consideration when formulating policy
Adeniji, S. O. (2014). An Appraisal of Stock Prices Volatility in the Nigerian Stock Market in an Era of Democracy. Unpublished MSc. Thesis, Department of Economics, University of Lagos.
Adeniji, S. O. (2015). An Empirical Investigation of the Relationship between Stock Market Prices Volatility and Macroeconomic Variablesâ€™ Volatility in Nigeria. European Journal of Academic Essays, Vol. 2 (11): 1 -12.
Andreas, E. L. and Constantinos, K. (2009).The Effects of the Increasing Oil Price Returns and its Volatility on Four Emerged Stock Markets. European Research Studies, Volume XII, Issue (1).
Basher, S. A. and Sadorsky, P. (2006). Oil price risk and emerging stock market. Global Finance Journal, Vol. 17, pp. 224â€“251.
Bernanke, BS 1983, 'Irreversibility, uncertainty, and cyclical investment', Quarterly Journal of Economics, vol. 98, pp. 115-34.
Degiannakis, S. George Filis, G. and Renatas Kizys, R. (2014).The effects of oil price shocks on stock market volatility: Evidence from European data. Department of Economics Richmond Building, Portland Street, PO1 3DE Portsmouth, UK.
Degiannakis, S., Filis, G. and Arora, V. (2017). Oil Prices and Stock Markets. Independent Statistics & Analysis U.S. Energy Information Administration, Washington, DC 20585.
Dhaoui, A and Bacha, S. (2017). Investor emotional biases and trading volumeâ€™s asymmetric response: A non-linear ARDL approach tested in S&P500 stock market. Cogent Economics & Finance (2017), 5: 1274225.
Effiong, E.L. (2014). Oil price shocks and Nigeriaâ€™s stock market: What have we learned from crude oil-market shocks? OPEC Energy Review, 38(1), 36â€“58.
Ekong, C.N., & Effiong, E.L. (2015). Oil price shocks and Nigeriaâ€™s macroeconomy: Disentangling the dynamics of crude oil market shocks. Global Business Review, 16(6), 920â€“935. Bastianin, A., Conti, F. and Manera, M. (2015). The Impacts of Oil Price Shocks on Stock Market Volatility: Evidence from the G7 Countries FONDAZIONE ENI ENRICO MATTEI. Working Paper n. 2015-17.
Emenike, K. O. and Okwuchukwu, O. (2014). Stock Market Return Volatility and Macroeconomic Variables in Nigeria. International Journal of Empirical Finance, Vol. 2, No. 2, Pg. 75-82.
GÂ¨untner, J. H. F. (2014). How do international stock markets respond to oil demand and supply shocks? Macroeconomic Dynamics, 18(8):1657â€“1682.
Hamilton, J.D., 2009. Causes and consequences of the oil shock of 2007â€“08. Brookings Papers on Economics Activity. Spring, pp. 215â€“261.
Hamilton, J.D., 2009a. Understanding crude oil prices. Energy Journal 30, 179â€“206.
Hamilton, J.D., 2009b. Causes and consequences of the oil shock of 2007-08. Brookings papers on Economic Activity, Spring 2009, 215â€“261.
Hammaa, W. Jarbouib, A. and Ghorbelc, A. (2014). Effect of oil price volatility on Tunisian stock market at sector-level and effectiveness of hedging strategy. 1st TSFS Finance Conference, TSFS 2013, 12-14 December 2013, Sousse, Tunisia.
Hasan, M. Z., & Ratti, R. A. (2012). Oil price shocks and volatility in Australian stock returns. Global Accounting, Finance and Economics Conference. University of Notre Dame Australia Business Conference Papers.
Hasan, M. Z., & Ratti, R. A. (2012). Oil price shocks and volatility in Australian stock returns. Global Accounting, Finance and Economics Conference.
Ibrahim, M. H. (2015). Oil and food prices in Malaysia: A nonlinear ARDL analysis. Agricultural and Food Economics, 2, 14â€“21.
Ibrahim, M. H., (1999). Macroeconomic Variables and Stock Prices in Malaysia: An Empirical Analysis. Asian Economic Journal, Vol. 13, No. 2, pp. 219-231.
Jung, H. and Park, C. (2011). Stock market reaction to oil price shocks: a comparison between an oil-exporting economy and an oil-importing economy. Journal of Economic Theory and Econometrics, 22(3):1â€“29.
Kang, W. and Ratti, R. A. (2013). â€˜Structural oil price shocks and policy uncertaintyâ€™, Economic Modelling, 35, pp. 314â€“319.
Kang, W., Ratti, R. A., & Yoon, K. H. (2015). The impact of oil price shocks on the stock market return and volatility relationship. Journal of International Financial Markets, Institutions & Money.www.elsevier.com/locate/intfin.
Katrakilidis C, Trachanas E (2012) What drives housing price dynamics in Greech: new evidence from asymmetric ARDL cointegration. Econ Model 29:1064â€“9.
Kilian, L. (2009), â€œNot all oil price shocks are alike: disentangling demand and supply shocks in the crude oil market,â€ American Economic Review, 99, 1053-1069.
Kilian, L. and C. Park (2009), â€œThe impact of oil price shocks on the U.S. stock market,â€ International Economic Review, 50, 1267-1287.
Kilian, L.C., 2009. Not all oil price shocks are alike: disentangling demand and supply shocks in the crude oil market. Am. Econ. Rev. 99, 1053â€“1069
Lawal, A.I., Somoye, R.O.C., & Babajide, A.A. (2016). Impact of Oil Price Shocks and Exchange Rate Volatility on Stock Market Behavior in Nigeria. Binus Business Review, 7(2), 171-177. http://dx.doi.org/10.21512/bbr.v7i2.1453
Masih, R., Peters, S. and De Mello, L (2010). Oil Price Volatility and Stock Price Fluctuations in an Emerging Market: Evidence from South Korea.
Mollah, S. A. (2009). â€œStock Return & Volatility in the Emerging Stock Market of Bangladeshâ€. Journal of the Academy of Business & Economics, 43 (2),29-78.
Ono, S. (2011). Oil Price Shocks and Stock Markets in BRICs. The European Journal of Comparative Economics Vol. 8, n. 1, pp. 29-45.
Oseni , I. O. and Nwosa, P. I. (2011), â€œStock Market Volatility and Macroeconomic Variables Volatility in Nigeria: An Exponential GARCH Approachâ€, Journal of Economics and Sustainable Development, Vol.2 (10), Pp. 28-42.
Oskooe, Paytakhti S. A. (2011). Oil price shock and stock market in an oil exporting country: Evidence from causality in mean and variance testÂ». International Conference On Applied Economics, p.443-451.
Park, J. W. and Rattia, R. A. (2007). Oil price shocks and Stock markets in the U.S. and 13 European Countries. Department of Economics, University of Missouri-Columbia, MO 65211, U.S.A.
Pesaran MH, Shin Y, Smith RJ (2001) Bounds testing approaches to the analysis of level relationship. J Apply Econometrics 16:289â€“326.
Pindyck, R., 1991. Irreversibility, uncertainty and investment. J. Econ. Lit. 29 _3., 1110]1148.
Rajni, M. & Mahendra, R. (2007). Measuring Stock Market Volatility in an Emerging Economy. International Research Journal of Finance & Economics 8,126-133 The Journal of political Economy, Vol. 81, No. 3, pp. 637 â€“ 654.
Romilly, P., Song, H., & Liu, X. (2001). Car ownership and use in Britain: A comparison of the empirical results of alternative cointegration estimation methods and forecasts. Applied Economics, 33, 1803â€“1818.
Sadorsky, P 1999, 'Oil price shocks and stock market activity', Energy Economics, vol. 21, pp. 449-69.
Shin Y, Yu B, Greenwood-Nimmo M (2011) Modelling Asymmetric Cointegration and Dynamic Multiplier in a Nonlinear ARDL Framework, Mimeo
Shin, Y., Yu, B., & Greenwood-Nimmo, M. (2014). Modelling asymmetric cointegration and dynamic multipliers in a nonlinear ARDL framework. Econometric Methods and Applications.
Walid Matar, Saud M. Al-Fattah, Tarek Atallah and Axel Pierru (2013). An introduction to oil market volatility analysis. OPEC Energy Review Â© 2013 Organization of the Petroleum Exporting Countries. Published by John Wiley & Sons Ltd, 9600 Garsington Road, Oxford OX4 2DQ, UK and 350 Main Street, Malden, MA 02148, USA.
Xiufang Wang (2010) â€œThe Relationship between Stock Market Volatility and Macroeconomic Volatility: Evidence from Chinaâ€ International Research Journal of Finance and Economics, ISSN 1450-2887 Issue 49, Euro Journals Publishing, Inc.
Yaya, O. S. and Shittu, O. I. (2010), â€œOn the Impact of Inflation and Exchange Rate on Conditional Stock Market Volatility: A Reassessmentâ€, American Journal of Scientific and Industrial Research, 1 (2), 115-117.
Zukarnain Zakaria and Sofian Shamsuddin (2012,"Empirical Evidence on the Relationship between Stock Market Volatility and Macroeconomics Volatility in Malaysia" Journal of Business Studies Quarterly 2012, Vol. 4, No. 2, pp. 61-71.