Exchange Rate Volatility and Stock Market Performance in Nigeria
This study investigated the impact of the naira volatility on the performance of the Nigerian stock market from 1986 to 2015. The adopted the Generalized Auto-Regressive Conditional Heteroscedasticity technique. The conclusion from the study analysis is that there is a very weak relationship between exchange rate volatility and the stock market. This result is not an indication of the assumption that the uncertainty that usually overwhelms the exchange rate market, will distort the adequate allocation of investments in the stock market. On the contrary, the impact of exchange rate volatility will most likely not be significant. However, the stock market was seen to be affected by other macroeconomic variables namely: inflation and GDP. The interest rate was however found not to significantly impact the performance of the stock market. Thus, the policy implication from this study is that the weak volatility transmission from the naira to stock market may be indicative of the increased use of hedging instruments by firms on the Nigerian Stock Exchange (NSE). More hedging instruments are therefore required to ensure the elimination of negative effects of Naira volatility. These hedging instruments should be efficient as well as not distort the normal functioning of the NSE.
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