Revista de Economía y Negocios

Appraising the Exchange Rate Volatility, Stock Market Performance and Aggregate Output Nexus in Nigeria

Abstract

Abiola Babatunde Abimbola and Ajibola Joseph Olusegun

This research work appraises the exchange rate volatility, stock market performance and aggregate output nexus in Nigeria. Making used of quarterly time series data with the use of ARCH and GARCH model, Bayesian VAR, VAR causality and Granger Causality model. The research work found that Exchange Rate and Stock price are Volatiles and the dwindling grossly affect the aggregate output. Also, there is high degree of positive relationship between Exchange rate, Stock Price Movement and Aggregate output. More so, Exchange rate volatility granger cause Stock price movement and Aggregate Output and vice versa. Furthermore, Exchange rate volatility and Stock Market performance has a positive significant impact on Aggregate output. Finally, there is joint causal impact of volatility of exchange rate, stock price, reserve on aggregate output in Nigeria. conclusion was made that there is a clear causal relationship between exchange rate volatility, stock market performance and Aggregate Output in Nigeria. Economic growth is achieved through sound an effective exchange rate that encourages FDI and financial inflow in the stock market. However, conclusion was made that there is presence and persistency of volatility shocks in the exchange rates for naira vis-à-vis US dollar in Nigeria between 1985 and 2015. This implies that the conventional monetary management policies instituted have proved ineffective in stabilizing the exchange rate of a unit US dollar to naira over the years. This therefore calls for the need of other forex management measures especially in terms of meeting the high demand for foreign currency which characterized and dictate the performance and trade balance and overall economic performance in Nigeria.