The Effect of Cryptocurrency Returns Volatility on Stock Prices and Exchange Rate Returns Volatility in Nigeria

Authors

  • Sodiq Olaiwola Jimoh University of Sains Malaysia,
  • Oluwasegun Olawale Benjamin Lightway Research and Technology Centre

Keywords:

Stock Prices; Bitcoin, Ethereum; Cryptocurrency; Exchange Rates; Univariate Volatility Models

Abstract

The global usage and acceptability of bitcoin and other forms of cryptocurrencies as another
means of payment have attracted the attention of financial and economic experts in recent times, but
research on these means of payment and their relationship with economic and financial variables are
scanty in Nigeria. This study, therefore, examined the nexus between the two key economic and
financial variables (exchange rate and stock market price) and the most traded cryptocurrency (Bitcoin
and Etherum) in Nigeria. The study used monthly data between August 2015 and December 2019 and
employed the Generalized Autoregressive Conditional Heteroscedasticity (GARCH 1,1), Exponential
Generalized Autoregressive Conditional Heteroscedasticity (EGARCH 1,1), and Granger causality
technique to estimate the reaction of the volatility of exchange rates and stock market prices to volatility
in cryptocurrency prices. The result shows that the stock market price is more influenced by the
instability of bitcoin and ethereum prices than the exchange rate in Nigeria. Further, there is evidence
of a one-way causality from bitcoin and ethereum to all share index. Given these findings, there is a
need for the stock market investors in Nigeria to pay rapped attention to the movement of
cryptocurrency prices.

References

Binance. (2019). Binance lists NGN, offers zero fee promo for deposits. Retrieved from
https://www.binance.com/en/support/articles/360035511611, 01.20.2020.
Bouoiyour, J. & R. Selmi. (2015). What does bitcoin look like? MPRA Paper No. 58091. Germany:
University Library of Munich.
Caporale, G. M., & Zekokh, T. (2019). Modelling volatility of cryptocurrencies using Markov-
Switching Garch models. Research in International Business and Finance, 48, pp. 143-155.
https://doi.org/10.1016/j.ribaf.2018.12.009.
Charles, A. & Darne, O. (2019). Volatility estimation for bitcoin: Replication and robustness.
International Economics, 157, pp. 23-32.
Chiu, Jonathan, & Thorsten, V. Koeppl (2017). The economics of cryptocurrencies: bitcoin and beyond.
Working Paper No. 1389. Kingston: Department of Economics, Queen’s University.
Corelli, A. (2018). Cryptocurrencies and Exchange rate: A relationship and causality analysis. MDPI,
(2017). https://doi.org/10.3390/risks6040111.
CryptoDavid (2019). Nigeria ranks top in online search volumes for bitcoin worldwide. Retrieved from
https://bitcoinke.io/2019/04/nigeria-ranks-top-in-online-search-volumes-for-bitcoin-worldwide/,
11.25.2019.
Erdas, M. L. & Caglar, A. E. (2018). Analysis of the relationships between bitcoin and exchange rate,
commodities and global indexes by asymmetric causality test. Eastern Journal of European Studies,
9(2), pp. 27-45.
Georgoula, I.; Pournarakis, D.; Bilanakos, C.; Sotiropoulos, D. & Giaglis, G. M. (2015). Using timeseries
and sentiment analysis to detect the determinants of bitcoin prices. Available at SSRN 2607167.
Glaser, F.; Zimmermann, K.; Haferkorn, M.; Weber, M. C. & Siering, M. (2014). Bitcoin-asset or
currency? Revealing users’ hidden intentions. ECIS.
Hope, D. (2017). Nigeria is ranked second place globally in bitcoin trading. Retrieved from
https://www.pulse.ng/bi/tech/tech-nigeria-is-ranked-second-place-globally-in-bitcointrading/
etlkxdw, 02.23.2020.
Kristoufek, L. (2013). Bitcoin meets Google trends and Wikipedia: quantifying the relationship
between phenomena of the internet era. Scientific Reports 3 (3415), pp. 1–7. Doi:10.1038/srep03415.
Oh, J. H. (2018). The foreign exchange market with the cryptocurrency and Kimchi Premium. The 22nd
biennial conference of the international telecommunications society: beyond the boundaries, challenges
for business, policy and society. Seoul, Korea, International Telecommunications Society (ITS), Seoul.
Oh, J. H. & Nguyen, K. (2018). The growing role of cryptocurrency: what does it mean for central
banks and governments? International Telecommunications Policy Review, 251, pp. 33-55.
Riska-Dwi, A. & Nadia, F. (2018). The effect of cryptocurrency on exchange rate of China: case of
bitcoin. Munich Personal Repec Archive, No. 93052. Retrieved from https://mpra.ub.unimuenchen.
de/93052/, 02.12.2019.

Downloads

Published

2020-07-15

Issue

Section

Financial Economics