Jump dynamics in the relationship between oil prices and the stock market: Evidence from Nigeria

摘要

This study investigates the relationship between oil prices and returns on the Nigerian Stock Exchange. By using GARCH-jump models, we are able to model the volatility of stock returns and also take account of the effect of extreme news events on returns. The empirical results show a negative but insignificant effect of oil prices on stock returns in Nigeria. Possible explanations for this result could be because the stock exchange is dominated by the banking sector and there are too few oil-related firms to warrant a channelling of high oil prices to the stock market; or because of the high transactions costs on the stock exchange which discourages investment; or because of low liquidity on the stock exchange.