Exchange Rate Depreciation, Currency Stabilization and Delayed Equity Market Repricing: A Conceptual Analysis of the Nigerian Stock Market

Author

Aliyu Abubakar Musa ,Abubakar Musa, Hamisu Abdulhamid

Abstract

 This paper develops a conceptual explanation of how currency depreciation and subsequent exchange-rate stabilization may influence the timing of equity-market repricing in Nigeria. The substantial naira depreciation of 2023–2024 and strong nominal performance of the Nigerian Exchange (NGX) provide a setting for examining an important valuation question: can equity prices continue adjusting after the initial currency shock? Integrating discounted cash-flow valuation, exchange-rate transmission, market efficiency and uncertainty-based theories, the paper distinguishes the effect of depreciation on expected corporate cash flows from the effect of exchange-rate uncertainty on required returns. Depreciation may increase the domestic-currency value of some earnings and assets while simultaneously raising production costs, foreign-currency liabilities and risk premia. Subsequent stabilization may support additional repricing if uncertainty-related discount rates decline and expected cash flows remain favourable. A stylized model yields four propositions concerning delayed adjustment, stabilization, heterogeneous firm exposure and the distinction between nominal, real and dollar-adjusted returns. Competing explanations for NGX appreciation and an agenda for empirical validation are considered. The paper makes a theoretical contribution; it does not establish that exchange-rate movements caused the observed equity rally.

Keywords

Exchange Rate Depreciation; Currency Stabilization; Equity Repricing; Exchange Rate Uncertainty; Risk Premium; Nigeria.

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References

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