Oil Revenue, Exchange Rate and Stock Market Performances in Nigeria: The Co-Integration Approach

Abstract

The study examined the relationship between oil revenue, exchange rate and stock market performances in Nigeria. The study used variables like all share index to proxy stock market performance as dependent variable while other independent variables are exchange rate, inflation rate and oil revenue in Nigeria. The study used OLS, unit root, co-integration and error correction tests to establish the long run link and short run dynamics. The 2 R is 0.713208 and is statistically significant (3.703442) at 5 percent level. The unit root results indicate variables are integrated of order 1(1) fostering the need for a co-integration test. The co-integration test reveals a long run relationship among the variables. This long run links necessitated for the conduct of error correction mechanism in order to link the long run to its short run equilibrium with a value of - 0.560547. This means that speed of adjustment is 56 from the long equilibrium to its short run equilibrium. The stability test carried out revealed that the model is stable over time from 1980- 2024. The study recommends that investors should invest in Nigerian stock market in that an increase in oil revenue leads to appreciation in domestic currency, which translate to appreciation in stock price in Nigeria. This study suggests that investment in stock market can be used as an apparatus to ease the domestic currency pressure to a sustainable level. Therefore, the need to maintain stable oil prices which thus can bring about higher revenue for the country Nigeria.