Exchange Rate Fluctuations, Oil Price Dynamics and Stock Market Volatility in Nigeria: An Empirical Evaluation

Abstract

This study evaluated the relationship between oil price fluctuations and exchange rate movements on stock market volatility in Nigeria. As a mono-product, oil-dependent economy, Nigeria's macroeconomic indicators and financial markets are highly susceptible to external shocks, particularly from global crude oil price variations and foreign exchange dynamics. Using daily time-series data from November 20, 2024 to June 30, 2025 obtained from Central Bank of Nigeria Statistical Bulletin, and employed econometric models such as the Error Correction Model (ECM) and Exponential Generalized Autoregressive Conditional Heteroskedasticity (EGARCH), the study investigated the magnitude and direction of influence of oil price and exchange rate on stock market volatility. Findings revealed that oil prices significantly impact the Nigerian stock market, whereas, exchange rates insignificantly impact the Nigerian stock market, with oil price shocks causing more pronounced and persistent volatility. The results also indicated that exchange rate depreciation contributes to investor uncertainty, which further amplifies stock market fluctuations. Moreover, asymmetric effects were observed, with negative shocks exerting a stronger influence than positive ones. The study concludes that Nigeria’s heavy reliance on oil revenues and unstable exchange rate regime are central drivers of stock market instability. Policy recommendations include that the Central Bank of Nigeria (CBN) should move toward a unified, market-determined exchange rate system to reduce distortions and speculative activities. Again, investors should be cautious of the high volatility and asymmetric response of the Nigerian stock market to negative events, among others.