EFFECT OF CRUDE OIL PRICE ON STOCK MARKET PERFORMANCE IN NIGERIA
Abstract
This study examined the impact of crude oil price changes on stock market performance in Nigeria over the period 1981–2024. The primary objective was to investigate whether positive and negative crude oil price shocks exert asymmetric effects on key stock market indicators, namely the All-Share Index (ASI), Market Capitalization (MCAP), and total volume of shares traded (VOL). The study employed the Nonlinear Autoregressive Distributed Lag (NARDL) model to capture both short-run and long-run asymmetries, alongside unit root tests, bounds cointegration tests, and Wald asymmetry tests. The bounds test results confirmed the existence of long-run relationships among the variables. Long-run results revealed that positive oil price shocks significantly reduced ASI (coefficient = -0.1756, p = 0.0372) and MCAP (coefficient = -0.1716, p = 0.0037),the negative sign reflects Nigeria’s fiscal dominance including the exchange rate pass through, implying that higher oil prices lead to naira appreciation pressure, CBN tightening and higher discount rates. While negative shocks significantly increased MCAP (0.3324, p = 0.0006) and VOL (1.0413, p = 0.0001), indicating strong asymmetry. In the short run, negative oil price shocks significantly increased trading volume (1.0091, p = 0.0388), while most positive shocks were statistically insignificant. The error correction terms were negative and significant across the three models, confirming adjustment toward the long-run equilibrium. The study concludes that crude oil price changes exert significant and asymmetric effects on stock market performance in Nigeria, with negative shocks generating stronger market responses, particularly in trading activity. It recommends economic diversification, exchange rate stabilization policies, enhanced risk management and portfolio diversification strategies for investors and financial institutions to mitigate exposure to oil price volatility in an oil-dependent economy.