The nexus between stock price and foreign exchange rate: validating the portfolio-balance model in Nigeria Online publication date: Mon, 16-Oct-2017
by Patrick Olufemi Adeyeye; Olufemi Adewale Aluko; Stephen Oseko Migiro
Afro-Asian J. of Finance and Accounting (AAJFA), Vol. 7, No. 4, 2017
Abstract: The relationship between stock price and foreign exchange (forex) rate has been a controversial issue over the years. This study examines the nexus between stock prices and forex rates in Nigeria from January 1985 to December 2014. It applies the Johansen co-integration, Toda-Yamamoto Granger non-causality and correlation tests. The empirical results reveal that there is presence of co-integration between stock prices and forex rates and unidirectional causality from forex rates to stock prices with positive correlation. This study did not validate the proposition of the portfolio-balance model in Nigeria but it provides substantiated evidence in favour of the traditional-flow model.
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