Vol. 6 No. 3 (2018)
Economic Implications of the Global Financial Crisis

Other Articles

Exploring the Nexus between Crude Oil Price and Stock Prices in Sub-Saharan Africa: A Case Study of Nigeria

Published 2018-09-23

  • Ditimi Amassoma
    • ,
  • Matthew Ogbuagu

Ditimi Amassoma
Federal university Oye-Ekiti, Nigeria

Matthew Ogbuagu
Federal University Oye-Ekiti

DOI:

https://doi.org/10.15678/EBER.2018.060309

Abstract

Objective: The objective of this article is to investigate the connection between unrefined oil price and stock prices in Sub-Saharan Africa with particular accentuation on the Nigerian economy.
Research Design & Methods: Based on the time series data used, we applied co-integration test and a restricted Vector Autoregressive Approach to verify the existence of each short and long-term relationship among the variables of interest.
Findings: The results revealed that there is very little correlation between crude oil price and stock indices, thereby implying that such an impact cannot be completely expected in the short run. Moreover, the study showed causality relation running from crude oil price and real rate of exchange to stock indices.
Implications & Recommendations: Since the study disclosed that petroleum price and rate of exchange values have far more impact on stock market indices in the long run than in the short run in Nigeria with rate of exchange contributing more to the general changes in available market indices throughout the study period, thereby suggesting that stock exchange indices are insensitive to crude oil price variations in the short run and thus resulting in loss of confidence by the investors. Consequently, the study recommends that the sitting government ought to utilise the revenue generated on the sales of petroleum to diversify the economy.
Contribution & Value Added: In this study, we tried to point out the responses of crude price shocks to stock prices, particularly throughout the previous and current administration in Nigeria. The study was able to discover that changes in unrefined oil do not impact the stock indices.

Keywords

crude oil price, VECM, stock market, causality, Sub-Saharan, Nigeria

PDF

Author Biography

Ditimi Amassoma

Economics Department / Assistant Professor

Matthew Ogbuagu

Ogbuagu Matthew

A PhD student, Lecturer II at the Department of Economics, Federal University Oye-Ekiti. His research focus is on Monetary economics and Energy economics.

Correspondence to: Mr. Ogbuagu Matthew, Federal University Oye-Ekiti, Department of Economics, 3 Afao road, Oye-Ekiti, PMB 373, Oye-Ekiti, Nigeria.

Email: Ogbuagu.matthew@fuoye.edu.ng

References

  1. Adaramola, A.O. (2012). Oil price shocks and stock market behaviour: The Nigerian experience. Journal of Economics, 3(1), 19-24.
  2. Afees, A.S., & Kazeem, O.I. (2017). Revisiting the oil price and stock market nexus: A nonlinear Panel ARDL approach. Economic Modelling, 66(2), 258-271. https://doi.org/10.1016/j.econmod.2017.07.010
  3. Akinlo, O.O. (2014). Oil price and stock market: Empirical evidence from Nigeria. European Journal of Sustainable Development, 3(2), 33-40. https://doi.org/0.14207/ejsd.2014.v3n2p33
  4. Aliyu, S.U.R. (2012). Does inflation have an impact on stock returns and volatility? An empirical analysis from China. Energy Policy, 22(6), 3544-3553. https://doi.org/10.1080/09603107.2011.617691
  5. Asaolu, T.O., & Ilo, B.M. (2012). The Nigerian stock market and oil price: A co-integration analysis. Arabian Journal of Business and Management Review, Kuwait Chapter, 1(5), 28-36.
  6. Babatunde, M.A., Adenikinju, O., Adenikinju, A.F., (2013). Oil price shocks and stock market behav-ior in Nigeria. Journal of Economic Studies, 40(2), 180-202.
  7. Basher, S.A., & Sadorsky, P. (2006). Oil price risk and emerging stock markets. Global Finance Journal, 17(2), 224-251. https://doi.org/10.1016/j.gfj.2006.04.001
  8. Bhar, R., & Nikolova, B. (2010) Global Oil Prices, Oil Industry and Equity Returns: RussianExperi-ence. Scottish Journal of Political Economy, 57(2), 169-186.
  9. Bjørnland, H.C. (2008), Monetary policy and exchange rate interactions in a small open economy. Scandinavian Journal of Economics, 110(1), 197-221. https://doi.org/10.1111/j.1467-9442.2008.00532.x
  10. Chang, C.-H., & Che, W. (2011). A empirical study of changes in international crude oil spot price relationship between Taiwan stock prices. Journal of Information and Optimization Sciences, 32(5), 1219-1227. https://doi.org/10.1080/02522667.2011.10700115
  11. Chen, N-F., Roll, R., & Ross, S. (1986). Economic Forces and the Stock Market. The Journal of Busi-ness, 59(3), 383-403.
  12. Ciner, C. (2001). Energy shocks and financial markets: nonlinear linkages. Studies in Non-Linear Dynamics and Econometrics, 5(3), 203-212.
  13. Cong, R.-G., Wei, Y.-M., & Jiao, J.-L. (2008). Relationships between oil price shocks and stock mar-ket: An empirical analysis from China. Energy Policy, 36(9), 3544-3553.
  14. Evangelia, P. (2001). Oil price shocks, stock market, economic activity and employment in Greece. Energy Economics, 23(5), 511-532.
  15. Faff, R.W., & Brailsford, T.J. (1999). Oil price risk and the Australian stock market. Journal of Ener-gy Finance and Development, 13(2), 69-87. Retrieved on August 20, 2018 from https://pdfs.semanticscholar.org/882c/a7e8831584c706aa1c93092f9b15cb0bef4a.pdf
  16. Fang, Ch-R. (2010). The impact of oil price shocks on the three BRIC countries’ stock prices (Work-ing Paper). Taiwan: National Cheng-Chi University.
  17. Gyasi, A.K. (2016, May). Commodity price shocks and African stock markets: Evidence from Ghana. Proceeding of the First American Academic Research Conference on Global Business, Eco-nomics, Finance and Social Sciences (2016AAR16 New York Conference), New York, USA.
  18. Hamilton, J.D. (1983). Oil and the macroeconomy since World War II. Journal of Political Economy, 91(2), 228-248.
  19. Huang, R.D., & Masulis, R.W. (1996). Energy shocks and financial markets. Journal of Future Mar-kets, 16(1), 1-27.
  20. Johansen, S., & Juselius, K. (1990). Maximum Likelihood Estimation and inference on Cointegration with Application to the Demand for Money. Oxford Bulletin of Economics Statistics, 52(2), 169-210. https://doi.org/10.1111/j.1468-0084.1990.mp52002003.x
  21. Jones, C., & Kaul, G. (1996). Oil and Stock Markets. Journal of Finance, 51(2), 463-491.
  22. Jouini, J., & Harraithi, N. (2014). Revisiting the shock and volatility transmissions among GCC stock and oil markets: A further investigation. Economic Modeling, 38(2), 486-494.
  23. Beckmann, J., Czudaj, R., & Arora, V. (2017). The relationship between oil prices and exchange rates: Theory and Evidence. (Working paper Series). Retrieved on August 20, 2018 from https://www.eia.gov/workingpapers/pdf/oil_exchangerates_61317.pdf
  24. Jungwook, P., & Ronald, A.R. (2008). Oil price shocks and stock markets in the U.S. and 13 Europe-an Countries. Energy Economics, 30(5), 2587-2608.
  25. Khalid, W., & Khan, S. (2017). Effects of macroeconomic variables on the stock market volatility. The Pakistan experience. International Journal of Econometrics and Financial Management, 5(2), 42-59. https://doi.org/10.12691/ijefm-5-2-4
  26. Kilian, L. (2008). Exogeneous Oil Supply Shocks: How Big are they and how much do they matter for the US Economy?. Review of Economics and Statistics, 90(2), 216-240. https://doi.org/10.1162/rest.90.2.216
  27. Kilian, L., & Park, C. (2009). The impact of oil price shocks on the US stock market*. International Economic Review, 50(4), 1267-1287.
  28. Koranchelian, T. (2005). The Equilibrium Real Exchange Rate in a Commodity Exporting Country: Algeria’s Experience (IMF Working Paper No. 05/135).
  29. Lescaroux, F., & Mignon, V. (2008). On the Influence of Oil Prices on Economic Activity and other macroeconomic and Financial Variables. OPEC Energy Review, 32(4), 343-380. https://doi.org/10.1111/j.1753-0237.2009.00157.x
  30. Lin, C., Fang, C., & Cheng, H. (2011). Relationship between oil price shocks and Stock market: an empirical analysis from Greater China. China Economic Journal, 3(3), 241-254. https://doi.org/10.1080/17538963.2010.562031
  31. Mehmet, B., Renee, V.E., Josine, U., & Rangan, G. (2014). The impact of oil price on south African GDP growth: A Bayesian Markov Switching-Var analysis (Working Paper Series No 2014-70). Retrieved on August 20, 2018 from https://www.up.ac.za/media/shared/61/WP/wp_2014_70.zp39315.pdf
  32. Nsosong, P.E., & Daniel, W.E. (2016). On the crude oil price, stock movement and economic growth nexus in Nigeria evidence from co-integration and VAR Analysis. Asian Journal of Eco-nomic Modeling, 4(3), 112-123.
  33. Nwachukwu, T.E., & Odigie, P. (2009, March). What drives private saving in Nigeria. A paper pre-sented at the centre for the study of African Economies (CSAE) conference, University of Ox-ford.
  34. O’Neil, T.J., Penm, J., & Terrell, R.D. (2008). The Role of Higher Oil Prices: A Case of MajorDevel-oped Countries. Research in Finance, 24, 287-299.
  35. Ogiri, I.H., Amadi, S.N., Uddin, M.M., & Dubon, P. (2013). Oil price and stock market performance in Nigeria: An empirical analysis. American Journal of Social and Management Sciences, 4(1), 20-41.
  36. Ojikutu, O.T., Onolemhemhen, R.U., & Isehunwa, S.O. (2017). Crude oil price volatility and its impacts on Nigerian stock market performance. International Journal of Energy Economics and Policy, 7(5), 302-311. Retrieved on August 20, 2018 from http://www.zbw.eu/econis-archiv/bitstream/handle/11159/1321/100532140X.pdf?sequence=1&isAllowed=y
  37. Osuji, C.C., & Chigbu, E.E. (2012). An evaluation of financial development and economic growth of Nigeria: A causality test. Kuwait Chapter. Arabian Journal of Business Management Review, 1, 27-44.
  38. Panagiotis, R., & Katrakilidis (2014). The relationship between oil prices and stock prices: A nonlin-ear asymmetric co-integration approach. Applied Financial Economics, 24(12), 793-800. Re-trieved on August 20, 2018 from https://www.arabianjbmr.com/pdfs/KD_VOL_1_10/3.pdf
  39. Papapetrou, E. (2001). Oil Price Shocks, Stock Market, Economic Activity and Employment in Greece. Energy Economics, 23(5), 511-532.
  40. Park, J., &. Ratti, R.A. (2008). Oil Price Shock Markets in the US and 13 European Countries. Energy Economics, 30(5), 2587-2608. https://doi.org/10.1016/j.eneco.2008.04.003
  41. Rong-Gang, C., Yi-Ming, W., Jian-Lin, J., & Ying, F. (2008). Relationship between oil price shocks and stock market: An empirical analysis from China. Energy Policy, 36(9), 3544-3553. https://doi.org/10.1016/j.enpol.2008.06.006
  42. Sadorsky, P. (1999). Oil Price Shocks and Stock Market Activity. Energy Economics, 21(5), 449-469. Retrieved on August 20, 2018 from https://pdfs.semanticscholar.org/03e2/ d6c4ccc27ff04e494c3854854561aba9f2a7.pdf
  43. Sadorsky, P. (2001). Risk factors in stock return of Canadian oil and gas companies. Energy Eco-nomics, 23, 17-28.
  44. Tajalli, F., & Bashir, A. (2014). Oil price and stock market fluctuations: Emerging markets (A com-parative study of Pakistan and China). International Review of Management and Business Re-search, 3(4). Retrieved on August 20, 2018 from http://www.irmbrjournal.com/papers/1418118254.pdf

Downloads

Download data is not yet available.