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Abstract
Purpose ― This study differs from previous studies by examining the impact of oil price components, namely oil demand, global oil supply, and oil market-specific demand, on the stock returns of five sectors (Banking, Consumer goods, Industrial, Insurance, and Oil and Gas) listed on the Nigerian Stock Exchange.
Design/Method/Approach ― The study employs the Autoregressive Distributed Lag (ARDL) model on monthly data between January 2000 and December 2019.
Findings ― The paper finds evidence of a long-run relationship between sectoral market returns and oil price changes in Nigeria. Further evidence from the study reveals that oil-specific demand and global oil demand have positive and significant effects on the aggregate stock returns and the returns of the sampled sectors. On the other hand, the impact of the global oil supply is inconsequential on the aggregate stock returns and sectoral returns except for the Oil and Gas sector, where the effect of global oil production is positive and significant.
Implication ― The study concludes that stock market returns in Nigeria are sensitive and vulnerable to changes in demand-side components of oil price. The study also highlights important policy implications to enhance the performance of the Nigerian stock market.
Originality/Value ― The paper examines the impact of disaggregated oil prices on sectoral returns of the five listed sectors on the Nigerian Stock Exchange, which has not been explored in the literature.
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Copyright (c) 2023 Titus Ojeyinka, Anthonia Emoshokemhe Aliemhe
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References
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- Abhyankar, A., Xu, B., & Wang, J. (2013). Oil price shocks and the stock market: Evidence from Japan. The Energy Journal, 34(2), 199–222.
- Adaramola, A. O. (2012). Oil price shocks and stock market behaviour: The Nigerian experience. Journal of Economics, 3(1), 19–24.
- Ajala, K., Sakanko, M. A., & Adeniji, S. O. (2021). The asymmetric effect of oil price on the exchange rate and stock price in Nigeria. International Journal of Energy Economics and Policy, 11(4), 202–208. https://doi.org/10.32479/ijeep.10977
- Akaike, H. (1998). A new look at the statistical model identification. In E. Parzen, K. Tanabe, & G. Kitagawa (Eds.), Selected Papers of Hirotugu Akaike (Springer S, pp. 215–222). New York,: Springer. https://doi.org/10.1007/978-1-4612-1694-0_16
- Akinlo, O. O. (2014). Oil price and stock market: Empirical evidence from Nigeria. European Journal of Sustainable Development, 3(2), 33. https://doi.org/10.14207/ejsd.2014.v3n2p33
- Alaali, F. (2017). Analysing the effect of oil price shocks on asset prices: Evidence from UK firms. International Journal of Economics and Financial Issues, 7(4), 418–432.
- Alamgir, F., & Amin, S. Bin. (2021). The nexus between oil price and stock market: Evidence from South Asia. Energy Reports, 7, 693–703. https://doi.org/10.1016/j.egyr.2021.01.027
- Asafo-Adjei, E., Adam, A. M., & Darkwa, P. (2021). Can crude oil price returns drive stock returns of oil producing countries in Africa? Evidence from bivariate and multiple wavelet. Macroeconomics and Finance in Emerging Market Economies, 1–19. https://doi.org/10.1080/17520843.2021.1953864
- Ashamu, S. O., Adeniyi, O., & Kumeka, T. (2017). The effects of oil price volatility on selected banking stock prices in Nigeria. NDIC Quarterly, 32(34), 35–53.
- Bastianin, A., Conti, F., & Manera, M. (2016). The impacts of oil price shocks on stock market volatility: Evidence from the G7 countries. Energy Policy, 98, 160–169. https://doi.org/10.1016/j.enpol.2016.08.020
- Caporale, G. M., Menla Ali, F., & Spagnolo, N. (2015). Oil price uncertainty and sectoral stock returns in China: A time-varying approach. China Economic Review, 34, 311–321. https://doi.org/10.1016/j.chieco.2014.09.008
- Degiannakis, S., Filis, G., & Kizys, R. (2014). The effects of oil price shocks on stock market volatility: Evidence from European data. The Energy Journal, 35(1), 35–56.
- Ebechidi, S., & Nduka, E. K. (2017). Modeling the impact of oil price shocks on energy sector stock returns: Evidence from Nigeria. Economics Bulletin, 37(4), 2574–2584.
- Effiong, E. L. (2014). Oil price shocks and Nigeria’s stock market: What have we learned from crude oil market shocks? OPEC Energy Review, 38(1), 36–58. https://doi.org/10.1111/opec.12027
- Hamilton, J. D. (2009). Understanding crude oil prices. The Energy Journal, 30(2), 179–206.
- Hu, C., Liu, X., Pan, B., Chen, B., & Xia, X. (2018). Asymmetric impact of oil price shock on stock market in China: A combination analysis based on SVAR Model and NARDL Model. Emerging Markets Finance and Trade, 54(8), 1693–1705. https://doi.org/10.1080/1540496X.2017.1412303
- Kang, W., Ratti, R. A., & Yoon, K. H. (2015). The impact of oil price shocks on the stock market return and volatility relationship. Journal of International Financial Markets, Institutions and Money, 34, 41–54. https://doi.org/10.1016/j.intfin.2014.11.002
- Karim, M. M., & Masih, M. (2021). Do the Islamic stock market returns respond differently to the realized and implied volatility of oil prices? Evidence from the time–frequency analysis. Emerging Markets Finance and Trade, 57(9), 2616–2631. https://doi.org/10.1080/1540496X.2019.1663409
- Kelikume, I., & Muritala, O. (2019). The impact of changes in oil price on stock market: Evidence from Africa. International Journal of Management, Economics and Social Sciences (IJMESS), 8(3), 169–194. https://doi.org/10.32327/IJMESS/8.3.2019.11
- Kilian, L., & Park, C. (2009). The impact of oil price shocks on the US stock market. International Economic Review, 50(4), 1267–1287.
- Kisswani, K. M., & Elian, M. I. (2017). Exploring the nexus between oil prices and sectoral stock prices: Nonlinear evidence from Kuwait stock exchange. Cogent Economics & Finance, 5(1), 1286061. https://doi.org/10.1080/23322039.2017.1286061
- Nigerian Stock Exchange. (2020). Annual market recap and 2021 outlook report. Retrieved from www.nse.com.ng/mediacenter/pressreleases/Pages/Onyema-Highlights-NSE-Performance-in-2020-Provides –Outlook-for 2021.aspx
- Obi, B., Oluseyi, A. S., & Evans, O. (2018). Impact of oil price shocks on stock market prices volatility in Nigeria: New evidence from a non-linear ARDL cointegration. Journal of Global Economy, 14(3), 173–190.
- Odusami, B. O. (2009). Crude oil shocks and stock market returns. Applied Financial Economics, 19(4), 291–303. https://doi.org/10.1080/09603100802314476
- Ojeyinka, T. A., & Yinusa, D. O. (2021). External shocks and output composition: evidence from Nigeria. Journal of Economic and Administrative Sciences, 37(4), 554–576. https://doi.org/10.1108/JEAS-02-2020-0022
- Ojeyinka, T. A., & Yinusa, D. O. (2023). External shocks and their transmission channels in Nigeria: A dynamic stochastic general equilibrium approach. Global Journal of Emerging Market Economies, 15(1), 132–153. https://doi.org/10.1177/09749101211067311
- Okere, K. I., Muoneke, O. B., & Onuoha, F. C. (2021). Symmetric and asymmetric effects of crude oil price and exchange rate on stock market performance in Nigeria: Evidence from multiple structural break and NARDL analysis. The Journal of International Trade & Economic Development, 30(6), 930–956. https://doi.org/10.1080/09638199.2021.1918223
- Olayeni, O. R., Tiwari, A. K., & Wohar, M. E. (2020). Global economic activity, crude oil price and production, stock market behaviour and the Nigeria-US exchange rate. Energy Economics, 92, 104938. https://doi.org/https://doi.org/10.1016/j.eneco.2020.104938
- Olayungbo, D. O. (2021). Volatility effects of the global oil price on stock price in Nigeria: Evidence from linear and non-linear GARCH. In M. K. Terzioğlu & G. Djurovic (Eds.), Linear and Non-Linear Financial Econometrics. Rijeka: IntechOpen. https://doi.org/10.5772/intechopen.93497
- Onyeke, C. E., Nwakoby, I., Onwumere, J. U. J., Ihegboro, I., & Nnamani, C. (2020). Impact of oil price shocks on sectoral returns in Nigeria stock market. International Journal of Energy Economics and Policy, 10(6), 208–215. Retrieved from https://www.econjournals.com/index.php/ijeep/article/view/10189
- Oyinlola, M. A., & Oloko, T. F. (2018). Exchange rate dynamics and stock market performance in Nigeria: Evidence from a Nonlinear ARDL Approach (Research Papers in Economics No. 59).
- Pesaran, M. H., Shin, Y., & Smith, R. J. (2001). Bounds testing approaches to the analysis of level relationships. Journal of Applied Econometrics, 16(3), 289–326. https://doi.org/10.1002/jae.616
- Pho, K. H., Ly, S., Ly, S., & Lukusa, T. M. (2019). Comparison among Akaike information criterion, Bayesian information criterion and Vuong’s test in model selection: A case study of violated speed regulation in Taiwan. Journal of Advanced Engineering and Computation, 3(1), 293–303. https://doi.org/10.25073/jaec.201931.220
- Ross, S. A. (2013). The arbitrage theory of capital asset pricing. In Handbook of the fundamentals of financial decision making (pp. 11–30). https://doi.org/10.1142/9789814417358_0001
- Ross, S. A., Friend, I., & Bicksler, J. L. (1977). Risk and return in finance. Cambridge, MA.: Ballinger Publishers.
- Salisu, A. A., & Isah, K. O. (2017). Revisiting the oil price and stock market nexus: A nonlinear Panel ARDL approach. Economic Modelling, 66, 258–271. https://doi.org/10.1016/j.econmod.2017.07.010
- Salisu, A. A., Raheem, I. D., & Ndako, U. B. (2017). A sectoral analysis of asymmetric nexus between oil and stock (Working Papers No. 033). https://doi.org/10.13140/RG.2.2.26744.96008
- Uzo-Peters, A., Laniran, T., & Adenikinju, A. (2018). Brent prices and oil stock behaviors: Evidence from Nigerian listed oil stocks. Financial Innovation, 4(1), 8. https://doi.org/10.1186/s40854-018-0092-2
- Wang, J., Umar, M., Afshan, S., & Haouas, I. (2022). Examining the nexus between oil price, COVID-19, uncertainty index, and stock price of electronic sports: Fresh insights from the nonlinear approach. Economic Research-Ekonomska Istraživanja, 35(1), 2217–2233. https://doi.org/10.1080/1331677X.2021.1937260
References
Abeng, M. O. (2016). Analysis of the effect of oil price shock on industry stock return in Nigeria. EcoMod 2016.
Abhyankar, A., Xu, B., & Wang, J. (2013). Oil price shocks and the stock market: Evidence from Japan. The Energy Journal, 34(2), 199–222.
Adaramola, A. O. (2012). Oil price shocks and stock market behaviour: The Nigerian experience. Journal of Economics, 3(1), 19–24.
Ajala, K., Sakanko, M. A., & Adeniji, S. O. (2021). The asymmetric effect of oil price on the exchange rate and stock price in Nigeria. International Journal of Energy Economics and Policy, 11(4), 202–208. https://doi.org/10.32479/ijeep.10977
Akaike, H. (1998). A new look at the statistical model identification. In E. Parzen, K. Tanabe, & G. Kitagawa (Eds.), Selected Papers of Hirotugu Akaike (Springer S, pp. 215–222). New York,: Springer. https://doi.org/10.1007/978-1-4612-1694-0_16
Akinlo, O. O. (2014). Oil price and stock market: Empirical evidence from Nigeria. European Journal of Sustainable Development, 3(2), 33. https://doi.org/10.14207/ejsd.2014.v3n2p33
Alaali, F. (2017). Analysing the effect of oil price shocks on asset prices: Evidence from UK firms. International Journal of Economics and Financial Issues, 7(4), 418–432.
Alamgir, F., & Amin, S. Bin. (2021). The nexus between oil price and stock market: Evidence from South Asia. Energy Reports, 7, 693–703. https://doi.org/10.1016/j.egyr.2021.01.027
Asafo-Adjei, E., Adam, A. M., & Darkwa, P. (2021). Can crude oil price returns drive stock returns of oil producing countries in Africa? Evidence from bivariate and multiple wavelet. Macroeconomics and Finance in Emerging Market Economies, 1–19. https://doi.org/10.1080/17520843.2021.1953864
Ashamu, S. O., Adeniyi, O., & Kumeka, T. (2017). The effects of oil price volatility on selected banking stock prices in Nigeria. NDIC Quarterly, 32(34), 35–53.
Bastianin, A., Conti, F., & Manera, M. (2016). The impacts of oil price shocks on stock market volatility: Evidence from the G7 countries. Energy Policy, 98, 160–169. https://doi.org/10.1016/j.enpol.2016.08.020
Caporale, G. M., Menla Ali, F., & Spagnolo, N. (2015). Oil price uncertainty and sectoral stock returns in China: A time-varying approach. China Economic Review, 34, 311–321. https://doi.org/10.1016/j.chieco.2014.09.008
Degiannakis, S., Filis, G., & Kizys, R. (2014). The effects of oil price shocks on stock market volatility: Evidence from European data. The Energy Journal, 35(1), 35–56.
Ebechidi, S., & Nduka, E. K. (2017). Modeling the impact of oil price shocks on energy sector stock returns: Evidence from Nigeria. Economics Bulletin, 37(4), 2574–2584.
Effiong, E. L. (2014). Oil price shocks and Nigeria’s stock market: What have we learned from crude oil market shocks? OPEC Energy Review, 38(1), 36–58. https://doi.org/10.1111/opec.12027
Hamilton, J. D. (2009). Understanding crude oil prices. The Energy Journal, 30(2), 179–206.
Hu, C., Liu, X., Pan, B., Chen, B., & Xia, X. (2018). Asymmetric impact of oil price shock on stock market in China: A combination analysis based on SVAR Model and NARDL Model. Emerging Markets Finance and Trade, 54(8), 1693–1705. https://doi.org/10.1080/1540496X.2017.1412303
Kang, W., Ratti, R. A., & Yoon, K. H. (2015). The impact of oil price shocks on the stock market return and volatility relationship. Journal of International Financial Markets, Institutions and Money, 34, 41–54. https://doi.org/10.1016/j.intfin.2014.11.002
Karim, M. M., & Masih, M. (2021). Do the Islamic stock market returns respond differently to the realized and implied volatility of oil prices? Evidence from the time–frequency analysis. Emerging Markets Finance and Trade, 57(9), 2616–2631. https://doi.org/10.1080/1540496X.2019.1663409
Kelikume, I., & Muritala, O. (2019). The impact of changes in oil price on stock market: Evidence from Africa. International Journal of Management, Economics and Social Sciences (IJMESS), 8(3), 169–194. https://doi.org/10.32327/IJMESS/8.3.2019.11
Kilian, L., & Park, C. (2009). The impact of oil price shocks on the US stock market. International Economic Review, 50(4), 1267–1287.
Kisswani, K. M., & Elian, M. I. (2017). Exploring the nexus between oil prices and sectoral stock prices: Nonlinear evidence from Kuwait stock exchange. Cogent Economics & Finance, 5(1), 1286061. https://doi.org/10.1080/23322039.2017.1286061
Nigerian Stock Exchange. (2020). Annual market recap and 2021 outlook report. Retrieved from www.nse.com.ng/mediacenter/pressreleases/Pages/Onyema-Highlights-NSE-Performance-in-2020-Provides –Outlook-for 2021.aspx
Obi, B., Oluseyi, A. S., & Evans, O. (2018). Impact of oil price shocks on stock market prices volatility in Nigeria: New evidence from a non-linear ARDL cointegration. Journal of Global Economy, 14(3), 173–190.
Odusami, B. O. (2009). Crude oil shocks and stock market returns. Applied Financial Economics, 19(4), 291–303. https://doi.org/10.1080/09603100802314476
Ojeyinka, T. A., & Yinusa, D. O. (2021). External shocks and output composition: evidence from Nigeria. Journal of Economic and Administrative Sciences, 37(4), 554–576. https://doi.org/10.1108/JEAS-02-2020-0022
Ojeyinka, T. A., & Yinusa, D. O. (2023). External shocks and their transmission channels in Nigeria: A dynamic stochastic general equilibrium approach. Global Journal of Emerging Market Economies, 15(1), 132–153. https://doi.org/10.1177/09749101211067311
Okere, K. I., Muoneke, O. B., & Onuoha, F. C. (2021). Symmetric and asymmetric effects of crude oil price and exchange rate on stock market performance in Nigeria: Evidence from multiple structural break and NARDL analysis. The Journal of International Trade & Economic Development, 30(6), 930–956. https://doi.org/10.1080/09638199.2021.1918223
Olayeni, O. R., Tiwari, A. K., & Wohar, M. E. (2020). Global economic activity, crude oil price and production, stock market behaviour and the Nigeria-US exchange rate. Energy Economics, 92, 104938. https://doi.org/https://doi.org/10.1016/j.eneco.2020.104938
Olayungbo, D. O. (2021). Volatility effects of the global oil price on stock price in Nigeria: Evidence from linear and non-linear GARCH. In M. K. Terzioğlu & G. Djurovic (Eds.), Linear and Non-Linear Financial Econometrics. Rijeka: IntechOpen. https://doi.org/10.5772/intechopen.93497
Onyeke, C. E., Nwakoby, I., Onwumere, J. U. J., Ihegboro, I., & Nnamani, C. (2020). Impact of oil price shocks on sectoral returns in Nigeria stock market. International Journal of Energy Economics and Policy, 10(6), 208–215. Retrieved from https://www.econjournals.com/index.php/ijeep/article/view/10189
Oyinlola, M. A., & Oloko, T. F. (2018). Exchange rate dynamics and stock market performance in Nigeria: Evidence from a Nonlinear ARDL Approach (Research Papers in Economics No. 59).
Pesaran, M. H., Shin, Y., & Smith, R. J. (2001). Bounds testing approaches to the analysis of level relationships. Journal of Applied Econometrics, 16(3), 289–326. https://doi.org/10.1002/jae.616
Pho, K. H., Ly, S., Ly, S., & Lukusa, T. M. (2019). Comparison among Akaike information criterion, Bayesian information criterion and Vuong’s test in model selection: A case study of violated speed regulation in Taiwan. Journal of Advanced Engineering and Computation, 3(1), 293–303. https://doi.org/10.25073/jaec.201931.220
Ross, S. A. (2013). The arbitrage theory of capital asset pricing. In Handbook of the fundamentals of financial decision making (pp. 11–30). https://doi.org/10.1142/9789814417358_0001
Ross, S. A., Friend, I., & Bicksler, J. L. (1977). Risk and return in finance. Cambridge, MA.: Ballinger Publishers.
Salisu, A. A., & Isah, K. O. (2017). Revisiting the oil price and stock market nexus: A nonlinear Panel ARDL approach. Economic Modelling, 66, 258–271. https://doi.org/10.1016/j.econmod.2017.07.010
Salisu, A. A., Raheem, I. D., & Ndako, U. B. (2017). A sectoral analysis of asymmetric nexus between oil and stock (Working Papers No. 033). https://doi.org/10.13140/RG.2.2.26744.96008
Uzo-Peters, A., Laniran, T., & Adenikinju, A. (2018). Brent prices and oil stock behaviors: Evidence from Nigerian listed oil stocks. Financial Innovation, 4(1), 8. https://doi.org/10.1186/s40854-018-0092-2
Wang, J., Umar, M., Afshan, S., & Haouas, I. (2022). Examining the nexus between oil price, COVID-19, uncertainty index, and stock price of electronic sports: Fresh insights from the nonlinear approach. Economic Research-Ekonomska Istraživanja, 35(1), 2217–2233. https://doi.org/10.1080/1331677X.2021.1937260