Title: The nexus between stock price and foreign exchange rate: validating the portfolio-balance model in Nigeria

Authors: Patrick Olufemi Adeyeye; Olufemi Adewale Aluko; Stephen Oseko Migiro

Addresses: Graduate School of Business and Leadership, University of Kwazulu-Natal, Westville, Durban 4000, South Africa ' Department of Finance, University of Ilorin, Nigeria ' Graduate School of Business and Leadership, University of Kwazulu-Natal, Westville, Durban 4000, South Africa

Abstract: The relationship between stock price and foreign exchange (forex) rate has been a controversial issue over the years. This study examines the nexus between stock prices and forex rates in Nigeria from January 1985 to December 2014. It applies the Johansen co-integration, Toda-Yamamoto Granger non-causality and correlation tests. The empirical results reveal that there is presence of co-integration between stock prices and forex rates and unidirectional causality from forex rates to stock prices with positive correlation. This study did not validate the proposition of the portfolio-balance model in Nigeria but it provides substantiated evidence in favour of the traditional-flow model.

Keywords: stock prices; foreign exchange rates; portfolio-balance model; Toda-Yamamoto Granger non-causality test; Nigeria.

DOI: 10.1504/AAJFA.2017.087513

Afro-Asian Journal of Finance and Accounting, 2017 Vol.7 No.4, pp.363 - 377

Available online: 15 Oct 2017 *

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