TITLE:               

Exchange Rate Volatility and Stock Market Capitalization in Nigeria

AUTHORS:     

Awotunde, Arini Asamu, Ogbebor, Peter Ifeanyi, Wale-awe, Isaac 

DOI:  10.5110/77. 1132               Page:   250-269          Vol: 19    Issue: 03   Year: 2024

ABSTRACT

Background: The Nigeria Stock market is the place where stocks are transacted between the issuing companies and the prospective investors buying the stocks. Funds raised are used to increase capacity utilization, production, consumption of goods and services, employment opportunities and standard of living in such a given economy. However, based on some factors, it turns out to become very difficult to raise the required funds from the stock market through the Nigeria Stock Exchange (NSE) to finance the desired projects to expand economic development. The experience is caused by the shallowness of the stock market capitalization which is one of the indicators often used as a measure of market size defined as the total values of all listed securities. Therefore, this study examined the effect of exchange rate volatility on stock market capitalization in Nigeria between the periods of 1999 to 2022.       

Material and methods: The study employed an ex-post facto research design while some pre-estimations were applied. The estimation techniques for the study was the generalized (GARCH). The inferences were also made using 5% significant level.         

Findings: Findings from the study showed that both exchange rate volatility have negative and insignificant effect on stock market capitalization (β= -0.04979, P-value > 0.05) while consumer price index (β= 0.29818, P-value > 0.05) have positive but insignificant effect on stock market capitalization.

Conclusion: The study concluded that exchange rate volatility does not have any significant effect on stock market performance in Nigeria. The study therefore recommended that Policymakers should prioritize implementing measures aimed at stabilizing the exchange rate to mitigate its adverse effects on stock market performance. This could involve adopting prudent monetary and fiscal policies to manage exchange rate fluctuations effectively. Additionally, efforts should be made to enhance transparency and predictability in exchange rate management to instill investor confidence and promote market stability.    

 Keywords:

Exchange rate volatility, Stock market returns, GARCH, T-GARCH

Received: 05 March 2024

Accepted: 21 March 2024

Published: 29 March 2024