The Impact of Exchange Rate Fluctuations on Nigeria Capital Market Performance

This paper empirically investigates the impact of exchange rate fluctuations on Nigerian capital market performance by using yearly time series data during the period 1981–2022. We examined the long-run and short-run elasticities of variables using the bounds testing (ARDL) approach to cointegration. The results of the analysis show that exchange rate fluctuations negatively influence market capitalization, inflation consistently has a negative effect, and GDP shows a complex relationship with both positive and negative effects, suggesting initial gains followed by corrections. The effects of foreign direct investment (FDI) exhibit a range of outcomes, including notable negative consequences from previous investments. The paper concludes that the findings indicate that the negative impact of exchange rate fluctuations on market capitalization underscores the need for stable exchange rate policies. The government should promote GDP growth, lower exchange rate volatility, ensure stable inflation, attract foreign investment, rectify overvaluation, and establish a strong policy framework to maintain market performance and economic indicators.