augmented dickey fuller and johansen co-integration tests of oil price volatility and stock price in emerging capital market: a case of nigeria

generally, high oil prices slow economic growth, cause inflationary pressures and creates global imbalances. in addition, oil price volatility increase uncertainty and restrain the much-needed investment in the capital market. thus, this paper applies the augmented dickey fuller and johansen co-integration tests in which the effect of oil price volatility, crude oil price and stock price is analyzed in a unifying model. the model is applied to nigeria using time series data spanning 1980 to 2013. the empirical result suggests that oil price volatility affect stock price positively and negatively. this was confirmed in the normalized co-integrating coefficients that there are positive and negative relationships between the variables. the inference is that when oil price positively affect stock price it mean that stock price is deemed to flourish (i.e. it creates a favorable investment climate) and the negativity indicates that oil price volatility does not mean well for stock price (i.e. it creates an unfavorable investment climate) in the capital market. the higher and more volatile the oil price, the worse the stock price is and vice versa.  based on this, it was recommended that policy aimed at capital market growth should focus on price stability.  also, viable and consistent economic diversification policies aimed at focusing on alternative sources of government revenue is recommended.