Jump dynamics in the relationship between oil prices and the stock market: Evidence from Nigeria

• This study investigated the relationship between oil prices and returns on the Nigerian Stock Exchange.
• To model effects of extreme news events, we used the GARCH-ARJI model of Chan and Maheu (2002)
• We found an insignificant relationship between oil prices and stock returns in Nigeria.
• This result is similar to results found by some other studies (Arouri et al., 2011; Hammoudeh and Choi, 2006).
• Possible explanations for this result could be because the stock exchange is dominated by the banking sector.

This study investigates the relationship between oil prices and returns on the Nigerian Stock Exchange. By using GARCH-jump models, we are able to model the volatility of stock returns and also take account of the effect of extreme news events on returns. The empirical results show a negative but insignificant effect of oil prices on stock returns in Nigeria. Possible explanations for this result could be because the stock exchange is dominated by the banking sector and there are too few oil-related firms to warrant a channelling of high oil prices to the stock market; or because of the high transactions costs on the stock exchange which discourages investment; or because of low liquidity on the stock exchange.