The Effect of Cryptocurrency Returns Volatility on Stock Prices and Exchange Rate Returns Volatility in Nigeria

Abstract

The global usage and acceptability of bitcoin and other forms of cryptocurrencies as another
\nmeans of payment have attracted the attention of financial and economic experts in recent times, but
\nresearch on these means of payment and their relationship with economic and financial variables are
\nscanty in Nigeria. This study, therefore, examined the nexus between the two key economic and
\nfinancial variables (exchange rate and stock market price) and the most traded cryptocurrency (Bitcoin
\nand Etherum) in Nigeria. The study used monthly data between August 2015 and December 2019 and
\nemployed the Generalized Autoregressive Conditional Heteroscedasticity (GARCH 1,1), Exponential
\nGeneralized Autoregressive Conditional Heteroscedasticity (EGARCH 1,1), and Granger causality
\ntechnique to estimate the reaction of the volatility of exchange rates and stock market prices to volatility
\nin cryptocurrency prices. The result shows that the stock market price is more influenced by the
\ninstability of bitcoin and ethereum prices than the exchange rate in Nigeria. Further, there is evidence
\nof a one-way causality from bitcoin and ethereum to all share index. Given these findings, there is a
\nneed for the stock market investors in Nigeria to pay rapped attention to the movement of
\ncryptocurrency prices.