The impact of conversion rate fluctuations on emerging financial markets: an econometric study for the period (2013–2024).

Abstract

This study investigates the impact of exchange rate fluctuations, specifically those affecting the Nigerian Naira against the US Dollar, on the performance of the Nigerian financial market between 2013 and 2024. Given Nigeria’s heavy reliance on oil exports and its exposure to external macroeconomic shocks, understanding the implications of currency volatility on market behavior is crucial. This paper utilizes an Autoregressive Distributed Lag (ARDL) model to capture both shortterm and long-term dynamics, incorporating inflation and interest rates as control variables. Monthly time-series data were collected from reputable financial databases, including the International Monetary Fund (IMF) and Investing.com. Stationarity was confirmed using the Augmented Dickey-Fuller (ADF) test, while the Bounds Test confirmed the existence of a cointegrated relationship among the variables. The results indicate a statistically significant and negative relationship between the Naira conversion rate and the NSE 30 Index, especially in the short term, supporting the theory that currency depreciation undermines investor confidence and market performance. Long-term analysis also reveals that interest rates negatively influence the market index, whereas inflation showed an insignificant impact within the model’s structure. These findings align with existing literature and reinforce the role of currency stability in enhancing capital market growth in emerging economies. The study concludes with policy recommendations targeting exchange rate management, inflation control, and investordriven regulatory frameworks to foster economic resilience. The originality of this study lies in its extended time frame, comprehensive econometric modeling, and focus on integrated macro-financial variables, which together offer valuable insights for policymakers, investors, and scholars interested in financial market dynamics under currency stress in resource-dependent economies like Nigeria. Key words: Exchange rate volatility; Emerging markets; Nigerian Stock Exchange; ARDL model; Inflation; Interest rates; Financial market index; Cointegration; Currency depreciation; Macroeconomic indicators.