Dynamic Effect of Exchange Rate Gap Shocks on Stock Market Deepening: Evidence from Nigeria

Authors

Kareem Abidemi Arikewuyo, Department of Business Administration, Faculty of Social and Management Sciences, Southwestern University, Okun-Owa, NigeriaFollow

Keywords

Exchange rate gap, foreign factors, stock market deepening, shocks, structural VAR-X.

Abstract

The study examines the exchange rate gap shock–stock market deepening nexus in Nigeria using the structural VAR-X (SVAR-X) technique for the period 1986Q1 to 2018Q4. Findings reveal that exchange rate gap shock has a negative but statistically not significant effect on stock market deepening in Nigeria. It was also found that exchange rate passed–through interest rate from second to thirteen quarter, and further through financial openness whose effect, like exchange rate gap, was negative. This implies that exchange rate gap is significantly and negatively related to interest rate and financial openness in Nigeria. It is therefore recommended that the monetary authority should keep constant tab on the gap between official and parallel market exchange rates as its widening can have a damaging effect on stock market deepening. In addition, there is need to establish hedging instrument market to increase resilience of the stock market and improve stock market deepening in Nigeria

Issue

1

Volume

14

First Page

93

Last Page

119

Recommended Citation

Arikewuyo, Kareem Abidemi (2023) "Dynamic Effect of Exchange Rate Gap Shocks on Stock Market Deepening: Evidence from Nigeria," CBN Journal of Applied Statistics (JAS): Vol. 14: No. 1, Article 3.
Available at: https://dc.cbn.gov.ng/jas/vol14/iss1/3