Oil price dynamics and firms' stock returns in the Nigeria stock market

Existing studies have investigated the impact of oil price risk (OPR) on firms' stock returns (FSRs) at the aggregate level; little attention has been devoted to firms' stock returns (FSRs) given the firm's size. This study was designed to investigate the effects of OPR on FSRs while considering the sizes of these firms in Nigeria. A nonlinear autoregressive distributed lag econometric model that captures OPR (positive and negative oil price change) was explored, in which short-run and long-run nonlinearities are estimated in both symmetric and asymmetric models. One hundred firms in the Nigeria Stock Exchange were partitioned into four quartiles using their market capitalization. The results showed that a positive OPR increased stock returns in the first quartile, third quartile and fourth quartile while anegative OPR reduced the returns in the first quartile, but the second, third and fourth quartile stock returns gained in the long-run. Generally, the quartiles responded to asymmetric oil price change. The OPR had differential impacts on stock returns depending on the size of the firm in Nigeria but negative OPR impacts most capitalized firms more.