Oil Price Shocks and Stock Market Performance in Nigeria: An ARDL Bounds Testing Approach

This study investigates the effect of oil price shocks on stock market performance in Nigeria using quarterly time-series data spanning 2000Q1 to 2023Q4. Stock market performance is proxied by the All-Share Index (ASI) of the Nigerian Exchange, while oil price shocks are captured using Brent crude oil prices, the exchange rate, inflation rate, and interest rate are included as control variables. The study adopts the Autoregressive Distributed Lag (ARDL) bounds testing approach, which accommodates a mix of I(0) and I(1) variables and permits the joint estimation of short-run and long-run dynamics. The ARDL bounds test confirms a long-run cointegrating relationship among the variables (F-statistic = 6.7843). The long-run estimates show that oil price shocks exert a positive and statistically significant effect on stock market performance (coefficient = 0.5432, p < 0.01), while the exchange rate, inflation, and interest rate each exert significant negative effects. The error correction term is negative and significant (-0.4321), indicating that approximately 43 percent of any short-run deviation from long-run equilibrium is corrected within a single quarter. Diagnostic tests confirm the absence of serial correlation and heteroskedasticity, correct functional form, and residual normality, while CUSUM and CUSUMSQ tests confirm parameter stability. The study concludes that oil price shocks remain a dominant external driver of stock market performance in Nigeria, operating both directly and indirectly through exchange rate, inflation, and interest rate channels. Economic diversification, exchange rate stability, and capital market deepening are recommended as policy priorities to reduce the sensitivity of the Nigerian stock market to global oil price volatility.