Impact of Oil Price Shocks on Sectoral Returns in Nigeria Stock Market

Chibueze E. Onyeke, Ifeoma Nwakoby, Josaphat U. J. Onwumere, Ifeoma Ihegboro, Chidiebere Nnamani

Abstract


This paper investigates the impact of oil price shocks on stock returns in Nigeria using monthly data on four sectoral indices – Banking, Insurance, Food, Beverages, & Tobacco (FB&T) and Oil & Gas (O&G) – over the period January 2010 to December 2018. The oil price shocks are decomposed into precautionary demand, aggregate demand, and supply sources. The outcome of the estimation of a Structural Vector Autoregressive (SVAR) model suggests that precautionary demand oil shock had negative and significant impact on the sectoral returns except for FB&T whose response was insignificant; aggregate demand oil shock had a negative but insignificant impact on the sectoral returns but for the O&G sector whose response was positive although insignificant; whereas oil supply shock had a positive but insignificant impact on the sectoral returns in the Nigerian stock market. However, O&G sector was the only exception with negative response to oil supply shock, albeit, insignificantly.

Keywords: Oil Price, Stock Returns, Structural VAR.

JEL Classification: G

DOI: https://doi.org/10.32479/ijeep.10189


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