Causality Evidence of Exchange Rate - Stock Price Relation in Nigeria: Symmetric and Asymmetric Approach


  • Adedeji Gbadebo Walter Sisulu University


Asymmetric causality, Granger causality, Symmetric causality, Negative cumulative component, Positive cumulative component


Foreign exchange and stocks are the two most traded financial assets in the world. The causality between their prices has been subject of research, particularly, on whether it is exchange rates that drive stock prices, as suggested by flow-oriented models from Dornbusch and Fisher (1980) or it is stock prices that drive the exchange rates, as suggested by the flow-oriented models from that Frankel (1983). I use data, from Nigeria, to explore Granger causality between them based on the symmetric approach, from Toda-Yamamoto (1995) and the asymmetric approach, from Hatemi-J (2012), for handling connectedness for ergodic variables with deterministic trends. The empirical test completed, as reveal by the unit root confirmation, identifies that the two considered series are trended and integrated. The results from the symmetric method recognise causality from exchange rate to the stock price, with no potential Granger-causal feedback. I transform the integrated series into negative and positive cumulative fragments, and complete the asymmetric test using the Wald statistic to verify the likelihood of lopsided causality. The results identify that allowing for asymmetry, and in particular, positive shocks in the naira exchange rate can cause a positive shock in share price, and not vice versa. Also, negative shocks in the exchange rate would not cause a negative shock in share price. This implies that any depreciation or devaluation of the naira would motivate investors to increase their participations in the stock exchange market. These finding has vital policy implications to different stakeholders, including government, regulators, currency- and stock markets traders and others in the Nigerian context.


Aggarwal, R. (1981). Exchange rates and stock prices: A study of the US capital markets under floating exchange rates. Akron Business and Economic Review, 12(3):7–12

Ajao, M. G., & Igbekoyi, O. E. (2013). The determinants of real exchange rate volatility in Nigeria. Academic Journal of Interdisciplinary Studies, 2(1):459–471.

Ajayi, R. A., & Mougoue, M. (1996). On the dynamic relation between stock prices and exchange rates. The Journal of Financial Research, 19(2):193–207.

Bahmani-Oskooee, M., & Saha, S. (2018). On the relation between exchange rates and stock prices: A non-linear ARDL approach and asymmetry analysis. Journal of Economics and Finance, 42(1): 112–137.

Bahmani-Oskooee, M., & Saha, S. (2016). Do exchange rate changes have symmetric or asymmetric effects on stock prices? Global Finance Journal, 31: 57–72.

Branson, W., Halttunen, H., & Masson, P. (1977). Exchange rate in the short-run: The dollar deutsche mark rate. European Economic Review, 10, 303–324.

Central Bank of Nigeria (2023). Monthly average exchange rates of the naira. Retrieved from

Chen, Q., & Li, H. (2023). How does exchange rate elasticity of aggregate consumption adjust currency risk price in the stock market? International Review of Economics & Finance, 84: 590-610.

Dornbusch, R., & Fischer, S. (1980). Exchange rates and current account. American Economic Review, 70: 960–971.

Eldomiaty, T., Saeed, Y., Hammam, R., & Aboul Soud, S. (2020). The associations between stock prices, inflation rates, interest rates are still persistent: Empirical evidence from stock duration model. Journal of Economics, Finance and Administrative Science, 25(49), 149–161.

Frankel, J. A. (1983). Monetary and portfolio balance models of exchange rate determination. In Economic Interdependence and Flexible Exchange Rates, edited by J. Bhandari (M.I.T. Press: Cambridge).

Gbadebo, A. D. (2023). Does exchange rates swings affect trade? Evidence from an Emerging Open Economy. International Journal of Economics and Financial Issue, 13(1): 132–143.

Granger, C.W.J. (1969). Investigating causal relations by econometric models and cross-spectral methods. Econometrica, 37, 424–438.

Gudmundsson, A. P. (2014). Stock prices and foreign exchange rates: The case of Iceland, Norway, Sweden and Hungary. (Master’s thesis).

Hashmi, S. M., Chang, B. H., Huang,L. & Uche, E. (2022). Revisiting the relationship between oil prices, exchange rate, and stock prices: An application of quantile ARDL model. Resources Policy, 75, 102543.

Hassan, A., Abubakar, M., & Dantama, Y. U. (2017). Determinants of exchange rate volatility: New estimates from Nigeria. Eastern Journal of Economics and Finance, 3(1), 1–12.

Hatemi-J, A. & Irandoust, M. (2002). On the causality between exchange rates and stock prices: a note. Bulletin of Economic Research, 54(2): 0307–3378.

Hatemi-J, A. (2012). Asymmetric causality tests with an application. Empirical Economics, 43(1): 447–456.

Khan, R. E. A, & Ali, R. (2015). Causality analysis of volatility in exchange rate and stock market prices: a case study of Pakistan. Asian Economic and Financial Review, 5(5): 805–815.

Manasseh, C. O., Chukwu, N. O. Abada, F. C., Ogbuabor, J. E., Onyeka, K. A., & Okoro. O.E. 2019. Cogent Economics & Finance 7: 1681573.

Mills, T. C. (2019). Applied Time Series Analysis: A practical guide to modeling and forecasting, United Kingdom: Academic Press, 339 str.

Mlambo, C., Maredza, A., & Sibanda, K. (2013). Effects of exchange rate volatility on the stock market: A case study of South Africa. Mediterranean Journal of Social Sciences, 4(14): 561–570.

Mwanza, C. N. (2014). The effect of foreign exchange rates on the performance of the Nairobi Securites Exchange. Masters thesis, University of Nairobi, Kenya.

Nigerian Stock Exchange (2020). Market indices - All share index. Retrieved from

Nkoro, E., & Uko, A. K. (2016). Exchange rate and inflation volatility and stock prices volatility: Evidence from Nigeria, 1986–2012. Journal of Applied Finance & Banking, 6(6): 57–70.

Nusair, S. A., & Olson, D. (2022). Dynamic relationship between exchange rates and stock prices for the G7 countries: A nonlinear ARDL approach. Journal of International Financial Markets, Institutions and Money, 78: 101541.

Osinubi, T. S., & Amaghionyeodiwe, L. A. (2009). Foreign direct investment and exchange rate volatility in Nigeria. International Journal of Applied Econometrics and Quantitative Studies, 6(2): 84–115.

Oyinpreye, A. T., & Karimo, T. M. (2015). The effect of exchange rate volatility on share price fluctuations in Nigeria. Paper presented at the IIER International Conference, Paris, France.

Özbey, F. Işcan, E., & Traş, M. F. (2016). How do exchange rate movements affect stock prices? The case of Turkey. International Academic Conference, Lisbon.

Phylaktis, K. & Ravazzolo, F. 2(005). Stock prices and exchange rate dynamics. Journal of International Money and Finance 24, 1031e1053.

Ross, S. (1976). The arbitrage theory of capital asset pricing. Journal of Economic Theory, 13(3), 341–360.

Sikhosana, A., & Aye, G. C. (2018). Asymmetric volatility transmission between the real exchange rate and stock returns in South Africa. Economic Analysis and Policy, 60, 1–8.

Suriani, S., Kumar, M. D. Jamil, & F. Muneer, S. 2015. Impact of Exchange Rate on Stock Market. International Journal of Economics and Financial Issues, 5: 385–388.

Toda, H. Y., & Yamamoto, T. (1995). Statistical inference in vector autoregressions with possibly integrated processes. Journal of Econometrics, 66 (Issues 1 & 2): 225-250.

Tule, M., Dogo, M., & Uzonwanne, G. (2018). Volatility of stock market returns and the naira exchange rate. Global Finance Journal, 35, 97–105.

Umoru, D., & Asekome, M. O. (2013). Stock prices and exchange rate variability in Nigeria econometric analysis of the evidence. European Scientific Journal, 9(25): 261–285.

Wong, H. T. (2022). The impact of real exchange rates on real stock prices. Journal of Economics, Finance and Administrative Science, 27 (54): 262-276.

Yang, P. (2017). Exchange rate dynamics and stock prices in small open economies: Evidence from Asia-Pacific countries. PACFIN 973,

Zhu, H., Yu, D., Hau, L. Wu, H., and Ye, F. (2022). Time-frequency effect of crude oil and exchange rates on stock markets in BRICS countries: Evidence from wavelet quantile regression analysis. The North American Journal of Economics and Finance,61, 101708.

Zubair, A. 2013. Causal relationship between stock market index and exchange rate: Evidence from Nigeria. CBN Journal of Applied Statistics, 4(2).




How to Cite

Gbadebo, A. (2023). Causality Evidence of Exchange Rate - Stock Price Relation in Nigeria: Symmetric and Asymmetric Approach. Acta Universitatis Danubius. Œconomica, 19(4), 193–209. Retrieved from



Financial Economics