Cryptocurrency Price Volatility and Stock Market Performance in Nigeria

This study examined the effects of volatility in the prices of cryptocurrencies on stock market performance in Nigeria using monthly data for the period 2016 to 2024. The study was based on the financial contagion theory. The Autoregressive Distributed Lag, Dynamic ARDL and Granger causality tests were employed to analyse the data. Cointegrating long-run relationship was found exists between stock market performance and volatility in cryptocurrency prices. The regression results indicate that the effect of cryptocurrency price volatility on stock market performance was positive for all cryptocurrencies except Ripple. Additionally, the short-run effects were more pronounced compared to the long-run effects. Evidence of spillover effects from volatility shocks in the cryptocurrency market to the stock market was observed, with the stock market responding positively to positive shocks in cryptocurrency volatility and vice versa. A bi-directional causality was also found between volatilities in Bitcoin, Ethereum, Binance Coin, and stock market performance, while no causality was observed between Ripple and stock market performance. Policymakers should develop comprehensive guidelines for cryptocurrency trading and integration with the financial market to mitigate volatility risks and their spillover effects between the cryptocurrency market and the stock market, to improve financial market stability. Also, investors and portfolio managers should promote portfolio diversification strategies to capitalize on short-term gains from cryptocurrency-induced stock market surges while cushioning against potential volatility-driven losses.