Oil Price Volatility and Stock Market Liquidity in Nigeria: A Comprehensive Empirical Investigation

Nigeria's economy remains structurally tethered to crude oil, making it uniquely susceptible to the destabilizing effects of global oil price fluctuations. This study investigates the dynamic relationship between oil price volatility and stock market liquidity in Nigeria over the period 1986–2025, while controlling for a comprehensive set of macroeconomic, institutional, and structural variables including fixed capital formation, foreign direct investment inflows, infrastructure index, exchange rate volatility, trade openness, technology, government expenditure, institutional quality, control of corruption, political stability index, ease of doing business score, sectoral composition, natural resource rents, financial development, labour force participation rate, unemployment rate, research and development expenditure, and internet penetration. Drawing on the Resource Curse Hypothesis, the Efficient Market Hypothesis, and the Liquidity Preference Theory, this paper employs a time-series regression framework augmented with the Autoregressive Distributed Lag (ARDL) bounds testing approach, accounting for structural breaks using the Zivot-Andrews unit root test. The Generalized Autoregressive Conditional Heteroscedasticity (GARCH) model is further applied to capture the volatility clustering inherent in oil price movements. Findings reveal that oil price volatility exerts a statistically significant and negative effect on stock market liquidity in Nigeria, both in the short and long run. Among the control variables, financial development, foreign direct investment, and internet penetration exhibit positive and significant associations with market liquidity, while exchange rate volatility, political instability, and corruption significantly dampen liquidity. The study contributes novel empirical evidence on the multidimensional transmission channels through which oil shocks propagate into equity market functioning in a frontier market context. Policy recommendations center on economic diversification, institutional reform, and financial sector deepening to build resilience against external commodity shocks. Keywords: Oil Price Volatility, Stock Market Liquidity, Nigeria, ARDL, Financial Development, Exchange Rate, Institutional Quality, Resource Curse JEL Classification: G10, G12, G15, Q43, F31, E44, O55, P48