Dynamics of Exchange Rate and the Performance of Service Industry: The Nigerian Experience

Subair, Kolawole; Talla, Sheriffdeen; Somoye, Russell Olukayode

doi:10.53369/tdgg1803

Cited by 3 publications

(6 citation statements)

References 10 publications

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“…Olugbenga (2012) tests quarterly data from 1985:1-2009:4 and identifies significant positive impact of current and previous exchange rate on share price. Subair and Salihu (2010) verifies annual data from 1981-2007 and find equilibrium relationship, as well as a significant negative impact of exchange rate volatility, interest rate, and inflation rate on stock market capitalization, while gross domestic product was found to have a significant positive impact on stock market capitalization.…”

Section: Literaturesupporting

confidence: 65%

“…An insignificant negative impact of Exchange Rate Volatility and Nigerian Stock Market Development changing inflation rate and financial openness on stock market volatility, while changing exchange rate exerts an insignificant positive impact on stock returns volatility. Subair and Salihu (2010) and Olugbenga (2012) use the ECM and the cointegration approach. Olugbenga (2012) tests quarterly data from 1985:1-2009:4 and identifies significant positive impact of current and previous exchange rate on share price.…”

Section: Literaturementioning

confidence: 99%

“…The connection the foreign exchange and financial markets have evidently grown due to increased global trade, capital inflows and foreign direct investments investors Studies show that the stock and currency fluctuations market have a central role in the economy, especially the developing ones (Subair & Salihu, 2010;Khosa et al, 2015;Najafzadeh et al 2016;Cevik et al, 2016;Yip et al, 2020;David & Grobler, 2020;Haryono & Atika, 2023). Haryono and Exchange Rate Volatility and Nigerian Stock Market Development Atika (2023) note that evaluating the effect of stock market provide market participants references that serve as guide to invest in making decisions on profitable securities portfolio.…”

Section: Introductionmentioning

confidence: 99%

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Exchange Rate Volatility and Nigerian Stock Market Development

Gbadebo

2023

J. Professional Business Review

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Purpose: The study aims to evaluate the impact of exchange rate volatility on the indicators of stock market, such as the returns, capitalization, liquidity, transaction volume, based on the Nigerian evidence. Theoretical framework: The paper considers extant model of exchange rate-stock market interactions. Because the diversity of the market is important the paper follows suggestions by El-Wassal (2013) to examine variety of stock market indicators in order to offer accurate depiction of how the stock market drives exchange rate volatility. Design/Methodology/Approach: The study employs a simple static regression model of stock market indicators with autoregressive adjustment component which absorb autocorrelation. The models are tested on annual data (1985-2020). Findings: The study finds that the exchange rate volatility has negative impact on stock market development - returns, capitalization and volume. The paper reveals further that other correlated controls factors impinge different impacts on the stock market indicators. Research, Practical & Social implications: One implication of the finding is that the volatility may discourage investors, reduce firm performance, and lead to reduction on the returns of firm shares. Policy makers should put in place growth-inducing infrastructural investments to make the business environment more conducive to attract foreign capital, while also positioning the capital market with several initiatives to increase trading activities. Originality/Value: The connection between the foreign exchange and financial markets is of policy importance. Although the focus is on the Nigerian markets, the evidence could be extended to other African and global markets, to serve as guide to foreign investors.

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Section: Literaturesupporting

confidence: 65%

Section: Literaturementioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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Exchange Rate Volatility and Nigerian Stock Market Development

Gbadebo

2023

J. Professional Business Review

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“…and Subair and Salihu (2010). IR, on the other hand, has a negative but statistically insignificant impact on capital market performance.…”

Section: Long-run Co-integration Using Ardl Bound Testing Approachmentioning

confidence: 89%

The impact of foreign direct investment on stock market growth: Evidence from Pakistan

Al-Delawi,

Shah,

Harjan

et al. 2023

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This paper aims to investigate the impact of foreign direct investment (FDI) on stock market growth in Pakistan from 1990 to 2020. The study aims to evaluate the impact of FDI on stock market growth in both the short and long term, as well as examine the impact of economic growth on stock market growth. The study uses an Autoregressive Distributed Lag (ARDL) model to analyze the long-term impacts of FDI on the stock market and an Error Correction Model (ECM) to evaluate the short-term impact. The study reveals a substantively significant and positive influence of Foreign Direct Investment (FDI) on the growth of the stock market, observed from both a short-term and long-term perspective. Gross National Income (GNI) and Exchange Rate (ER) also have a significant bearing on stock market growth, while Interest Rate (IR) is found to have a negative impact but is statistically insignificant. The findings also confirm the impact of economic growth on stock market development, establishing a triangular relationship between FDI, Economic Growth, and Stock Market Growth. The study concludes that FDI has a significant positive impact on stock market growth in Pakistan in both the short and long term. It further suggests that macroeconomic policies should be developed and a tax-free market environment should be created to stimulate and encourage foreign direct investment for economic growth and stock market growth. The study's policy implications suggest that government officials should implement viable macroeconomic policies and create a tax-free market environment to encourage foreign direct investment for economic and stock market growth in Pakistan.

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“…While the granger causality tests revealed an absence of causal relationship between the stock price and exchange rates, a unidirectional causality flowing from broad money supply to stock price before the period of the crisis was established. Subair and Salihu (2013) investigate the influence of exchange rate volatility on the Nigerian stock market using error-correction model (ECM). Exchange rate volatility was generated through the GARCH process which showed to have a negative impact on the Nigeria stock market.…”

Section: Literature Reviewmentioning

confidence: 99%

Effect of Exchange Rate on Stock Price Movement in Nigeria

O. Adaramola,

A. Abere,

Fidelis Ogiamien

2023

FMIR

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Theories of exchange rate in developing economies suggest that between exchange rate and stock price movement, a positive relationship exists. In Nigeria, depreciation of local currency to many seems not to have brought about the expected increase in export or output in the industrial sector, let alone the firms’ stock prices. This study was therefore set out to investigate the effect that exchange rate has on stock price movement in Nigeria and the direction of causality between the two. Data on exchange rate, interest rate, inflation rate, gross domestic product and stock market index in Nigeria were used for the analyses. Auto Regressive Distributed Lag (ARDL) test was used to assess the possibility of existence of a long run association between exchange rate and stock price movement. Results established a long run and significant relationship between exchange rate and stock price movement in Nigeria (F:12.89 >Io & I1Bound, P-value < 0.05 for LEXR, LGDP LINF). However, the negative coefficients of the regressors; especially exchange rate, run contrary to existing theories on the benefits of depreciating exchange rates. This means that Nigeria has not fully reaped the expected benefits from devaluation of her local currency over the years. A unidirectional causality between exchange rate and stock price movement was also discovered. Causation flows from exchange to stock price (P-value < 0.05 for LEXR). This further suggests that most firms in Nigeria lack the absorption capacity to transform the accruing gains of currency depreciation to increased productivity and exports.

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Dynamics of Exchange Rate and the Performance of Service Industry: The Nigerian Experience

Cited by 3 publications

References 10 publications

Exchange Rate Volatility and Nigerian Stock Market Development

Exchange Rate Volatility and Nigerian Stock Market Development

The impact of foreign direct investment on stock market growth: Evidence from Pakistan

Effect of Exchange Rate on Stock Price Movement in Nigeria

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