Oil price uncertainty, sectoral stock returns and output growth in Nigeria.

Abstract This thesis examines the influence of oil price uncertainty shocks on sector stock return uncertainties and real output and provides new insights on how oil price uncertainty impulses are transmitted to the Nigerian macroeconomy. Five industry sectors namely banking, oil and gas, insurance, food beverages and tobacco, and consumer goods are investigated. The major contributions of this thesis include the decomposition of the effect of oil price change into sector stocks, application of second moment analysis, utilisation of high frequency micro-data and adoption of more than one econometric methodology. This deviates markedly from previous studies and unveils critical decision making information that was hitherto subsumed under the conventional macro-analysis approach. Three themes are examined for Nigeria using the multifactor model and the structural vector autoregressive framework. The first focuses on estimating sector stock returns sensitivity to oil price changes; the second analyses the effect of oil price uncertainty shocks on sector stock returns uncertainty, while the third assesses the effect of oil price uncertainty shocks on output growth. Significant policy issues include the overwhelming consequence of the oil price factor, the industry-wide negative effect of exchange rate and the near neutrality of interest rate effect. Evidence of price and exchange rate puzzles are clearly demonstrated. Though this poses a serious threat to the effective conduct of monetary policy in achieving the price and monetary stability mandate, they however, serve as potent tools for economic agents’ portfolio selection and management of investment risks. Suggested policy direction includes monitoring oil price movements, ensuring a stable foreign exchange market, and the removal of structural rigidities such as infrastructural bottlenecks and fuel subsidy programme. This would eliminate the perceived impediments to the effective conduct and implementation of monetary policy as well as enhance the seamless transmission of policy impulses to the economy