Portfolio Balance Approach to Asymmetries, Structural Breaks and Financial Crisis: Testing a Model for Nigeria, Portfolio balance theory

Authors

Oluwasegun B. Adekoya, DepFederal University of Agriculture, AbeokutaFollow

Keywords

Asymmetries, Exchange rate, Global financial crisis, Portfolio balance theory, Stock price, Structural breaks

Abstract

This study tests the Portfolio Balance Theory (PBT) for Nigeria for the period starting from September 1997 to September 2018. It extends the hypothesized linear inverse relationship between exchange rate and stock price to include asymmetries and structural breaks. It further examines the impact of the 2008 global financial crisis on the PBT to determine its stability after the crisis. The full sample results show that the PBT holds for Nigeria and asymmetries and structural breaks matter in the nexus between stock price and exchange rate. However, the impact of stock price on exchange rate diminished in the long-run with the advent of the 2008 global financial crisis, thus eroding the relative consistency of the PBT after the crisis. The sensitivity of the Nigerian exchange rate to stock price changes calls for the strengthening of the stock market performance through relevant policies including the enhancement of portfolio diversification and risk-hedging assets. The role of asymmetries should not also be jettisoned in predicting exchange rate with stock prices to obtain accurate forecast results.

Author Bio

The author of this article is from the Department of Economics, Federal University of Agriculture, Abeokuta, Nigeria. Email: adekoyaob@gmail.com, Mobile: +2348168889097

Publication Title

CBN Journal of Applied Statistics

Issue

1

Volume

11

Recommended Citation

Adekoya, Oluwasegun B. (2020) "Portfolio Balance Approach to Asymmetries, Structural Breaks and Financial Crisis: Testing a Model for Nigeria, Portfolio balance theory," CBN Journal of Applied Statistics (JAS): Vol. 11: No. 1, Article 4.
Available at: https://dc.cbn.gov.ng/jas/vol11/iss1/4