مدلسازی بازده و انتقال نوسانات بین قیمت نفت و نرخ ارز ایالات متحده-نیجریه

This paper models returns and volatility transmission between oil price (OP) and US–Nigeria exchange rate (EXR). Consequently, it provides five main innovations: (i) it analyzes OP and EXR using the recently developed test by Narayan and Popp (2010) (NP) which allows for two structural breaks in the data series (ii) it employs the Narayan and Liu (2011) (NL) GARCH unit root test to evaluate robustness of NP test (iii) it considers the newly developed VAR-GARCH model to capture the spillover effects in the returns and volatility of OP and EXR; (iv) it modifies the VAR-GARCH model to account for structural breaks obtained from the NP procedure and (v) using the results obtained from the VAR-GARCH model, it examines the optimal weights of holding oil and foreign exchange (FX) assets and also computes the hedging ratios in the presence of oil risk. Based on the NP and NL tests, it finds robust structural breaks that coincide with the period of global financial crisis as well as period of FX crisis in Nigeria. Also, it establishes a bidirectional returns and spillover transmission between oil and FX markets. Finally, its findings reveal evidence of hedging effectiveness involving oil and FX markets in Nigeria and thus, the inclusion of oil into a diversified portfolio of FX will improve its risk-adjusted return performance.

The development of a theoretical framework for modeling the relationship between oil price and exchange rate was pioneered by Golub (1983) and Krugman (1983). The argument for the oil price–exchange rate volatility transmission is usually premised on the fact that oil is quoted in US dollars (USD) and therefore, fluctuations in oil price may affect exchange rate behavior of the trading countries through the USD. This relationship is not expected to be generalized for both net oil-exporters and net oil-importers that are running floating exchange rate. For example, when the USD depreciates, oil-exporting countries would raise oil prices in order to stabilize the purchasing power of their (USD) export revenues. Conversely however, the oil importers may have to deplete their USD based reserves to settle their high oil import bills. Thus, increasing oil prices may enhance the appreciation of net oil-exporters currencies (due to increased USD reserves) and may cause depreciation of net oil importers currencies due to higher import bills and higher production costs (see Ding and Vo, 2012). Evidently, several attempts have been made to establish the empirical link between oil price and exchange rate (see Reboredo and Rivera-Castro, 2013 for a survey of recent literature). In addition to the mixed and therefore inconclusive results of these extensive studies, the issue of returns and volatility spillover transmission between oil and foreign exchange markets covering both interactions and portfolio management in these markets has remained uninvestigated. Therefore, the present study attempts to fill this research gap while drawing evidence from Nigeria. There are several convincing reasons justifying the need for empirical analysis of oil-price–US/Nigeria exchange rate nexus. First, Nigeria is ranked among the top ten oil producers and net oil exporters and therefore, fluctuations in oil price are expected to affect its USD reserves and by implication the purchasing power of its local currency relative to USD. Second, oil revenue accounts for over 90% of the total revenue of Nigeria annually and therefore, changes in oil price are expected to have serious implications on the Nigerian macroeconomy which have to be dealt with by the relevant authority. Thus, an empirical investigation into the nexus between oil price and US–Nigeria exchange rate will provide useful insights into effective policy formulation by policy makers. Similarly, information about the probable return and spillover transmission between oil and exchange rate will offer plausible ideas to investors on how to diversify their portfolios or hedge their risks. To achieve the main objective, the study employs the newly developed VAR-GARCH model introduced by Ling and McAleer (2003) and subsequently applied by Chan et al. (2005), Hammoudeh et al. (2009), Arouri et al. (2011a) to various economic analyses.1 This modeling framework has, to the best of our knowledge, never been employed to study returns and volatility transmission between oil price and exchange rate. Apart from the less computational complications in obtaining estimates of the unknown parameters compared to other multivariate specifications, the VAR-GARCH model facilitates the estimation of the spillover effects of conditional returns, volatility and correlations between/among commodity markets. In all, this study adds to the existing literature in the following distinctive ways (i) it analyzes oil price (OP) and US–Nigeria exchange rate (EXR) using the recently developed test by NP which allows for two structural breaks in the data series2 (ii) it employs the NL GARCH unit root test to evaluate robustness of NP test (iii) it considers the newly developed VAR-GARCH model to capture the spillover effects in the returns and volatility of OP and EXR; (iv) it modifies the VAR-GARCH model to account for structural breaks obtained from the NP procedure and (v) using the results obtained from the VAR-GARCH model, it examines the optimal weights of holding oil and foreign exchange (FX) assets and also computes the hedging ratios in the presence of oil risk. The remainder of the paper is organized as follows. Sec. 2 presents a review of relevant empirical papers and Sec 3 describes the data and also provides some preliminary analyses. While Sec. 4 discusses the model and the empirical results, Sec. 5 further applies the model to evaluate portfolio management in the presence of oil risk. Sec. 6 however concludes the paper.

This paper empirically examines the returns and volatility transmissions between oil and FX markets in Nigeria using daily data covering the period from 2002 to 2012. We provide five main innovations in this paper: (i) we analyze OP and EXR using the recently developed test by NP which allows for two structural breaks in the data series; (ii) we employ the NL GARCH unit root test to evaluate robustness of NP test (iii) we consider the newly developed VAR-GARCH model to capture the spillover effects in the returns and volatility of OP and EXR; (iv) we modify the VAR-GARCH model to account for structural breaks obtained from the NP procedure and (v) using the results obtained from the VAR-GARCH model, we examine the optimal weights of holding oil and foreign exchange (FX) assets and also computes the hedging ratios in the presence of oil risk. Based on the NP test, we find structural breaks that coincide with the period of global financial crisis as well as period of FX crisis in Nigeria. Evidently, our results establish the existence of significant returns and volatility spillovers between oil and FX markets in Nigeria. In sum, our findings lend support to bidirectional returns and spillover transmissions between oil and FX markets. Thus, the rise in oil price volatility may result into depreciation in Nigerian currency relative to USD. Similarly, depreciation in USD may drive up oil price in the crude oil market. In essence, modeling and forecasting returns and volatility in each market will necessarily require the consideration of the other market to produce plausible estimates and forecasts. Finally, our findings reveal evidence of hedging effectiveness between oil and FX markets in Nigeria and thus, the inclusion of oil into a diversified portfolio of FX may improve its risk-adjusted return performance.