Oil Price Shocks, Exchange Rate Risk and Stock Market Volatility

This study considers the effects of oil price shocks and the risk associated with exchange rate stock market volatility in Nigeria. Data for this study was extracted from the Central Bank of Nigeria statistical database, Nigeria Exchange Limited database and the World Uncertainty database covering the period April 2016 to September 2022. The autoregressive distributive lag (ARDL) technique was employed to capture the short and long run effects of commodity prices shocks and the volatility of exchange rate on market volatility. This study found that oil price shocks (volatility of crude oil price and the volatility of the pump price of petrol) positively and significantly influences stock market volatility both in the short-run and long-run, while exchange rate risk (exchange rate volatility) negatively and significantly determines stock market volatility in the short and as well as in the long-run. This study recommends among others that investors should demand commodity price risk and exchange rate risk premiums while pricing financial assets as this will compensate for the market risk and boost investment returns.