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Oil Price Shocks and Stock Market Volatility in Nigeria

Authors

Abayomi Musiliu

Department of Finance, University of Lagos (Nigeria)

Rufus A. Olowe (Ph.D)

Department of Finance, University of Lagos (Nigeria)

Article Information

DOI: 10.47772/IJRISS.2026.101000395

Subject Category: Banking and Finance

Volume/Issue: 10/10 | Page No: 5570-5586

Publication Timeline

Submitted: 2026-06-10

Accepted: 2026-06-15

Published: 2026-11-03

Abstract

This study examines the effect of oil price shocks on stock market volatility in Nigeria using monthly data from February 2010 to December 2025. A stock volatility (SV) series, which is a more accurate indicator of time-varying volatility than raw returns, was first generated using the GARCH model in order to capture the dynamics of volatility in the Nigerian stock market. In accordance with the stylized facts of financial time series data, a correlogram of the stock returns was examined prior to modeling, and the results showed evidence of volatility clustering high volatility followed by high volatility and low volatility intervals followed by calm periods. The Augmented Dickey-Fuller (ADF) test was used to establish the stationarity of the data series. The Johansen cointegration test confirmed the existence of a long-run equilibrium relationship among oil price, exchange rate, inflation, and stock market volatility, which justified the use of the Vector Error Correction Model (VECM). The VECM framework was further complemented with the Impulse Response Function (IRF) to trace the dynamic interactions and adjustment paths among the variables. The empirical results revealed that in the short run, oil price fluctuations have a positive but statistically insignificant impact on stock market volatility, suggesting that the Nigerian stock market does not respond immediately to oil price changes. However, the long-run results show a significant relationship among oil prices, exchange rate, inflation rate, and stock market volatility, indicating gradual adjustment toward equilibrium. This implies that Nigeria’s financial market is more sensitive to persistent structural changes in oil prices than to temporary shocks. The study concludes that diversification of the economy, transparent exchange rate management, and the strengthening of market institutions are critical to mitigating the long-term effects of oil price volatility on Nigeria’s stock market.

Keywords

Oil Price, Stock Market Volatility, Exchange Rate, Inflation Rate, GARCH, VECM

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