OIL PRICE SHOCKS, STOCK MARKET RETURNS AND VOLATILITY IN NIGERIA: A DISAGGREGATED APPROACH

This study examined empirically, the returns and volatility spillover effects between oil price and sectoral stocks in Nigeria using high frequency daily data on oil price and eleven sectors namely Agriculture, Conglomerates, Construction/Real Estate, Consumer Goods, Financial Services, Health Care, ICT, Industrial Goods, Natural Resources and Oil & Gas. The main objective of which is to examine the return and volatility spillover effects between the sectors and oil price. The study is anchored on three theories; the Discounted Cash Flow Model, the Capital Assets Pricing Model and the Arbitrage Pricing Theory. The data on the variables listed above were obtained from Nigerian Stock Exchange Group and US Energy Information Administration. The study utilized the Vector Autoregressive Moving Average-Generalized Autoregressive Conditional Heteroskedasticity (VARMA-GARCH) multivariate volatility model for estimation where findings indicate bidirectional return and volatility spillover effects, between oil market and majority of the stock sectors. Additionally, results indicate low Constant Conditional Correlations (CCC) coefficients between oil and stock prices. The study concludes that there exist both return and volatility spillover effects, and that both return and volatility in both markets are fueled by own return and volatility effects and therefore recommends among others construct hedge ratios and portfolio weights to as a guide to minimize loses, as well as factor in their decision making own short- and long-term shocks.