EXCHANGE RATE, STOCK MARKET PERFORMANCE AND THE COVID-19 PANDEMIC IN NIGERIA

Abstract

This paper evaluates the interaction among exchange rate, stock market performance and the COVID-19 pandemic in Nigeria for the period spanning February-September, 2020 using daily exchange rates, stock market index, a measure of stock market performance, and COVID-19 related variables-confirmed cases, discharge rate and total death cases. The theoretical framework is rooted from the random walk theory modified to incorporate the portfolio adjustment approach to describe the relationship among the variables. Results from the Autoregressive distributed lag model (ARDL) demonstrate a long run relationship among exchange rate, stock market index and COVID-19 related variables. In the long run, first-period lagged estimate of number of death cases essentially causes exchange rate depreciation and in the short run, both first and second period lags of total death cases cause depreciation of the naira. In the long run, stock market index decline results in exchange rate depreciation while reduction in the second-period lag stock index results in depreciation in the short run. About 7% disequilibrium error is corrected per month assuming there exists a distortion from long run equilibrium. A more open economy is needed amidst containment measures of COVID-19 complemented by policy which enhances improvement in welfare including adequate investment financing, low utility charges among others.