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EFFECTS OF EXCHANGE RATE VOLATILITY ON
COMMERCIAL PROPERTY RETURNS IN NIGERIA


A. O. Diala
University of Uyo, Nigeria


I. U. Kalu
Abia State University, Nigeria


A. Igwe-Kalu
Abia State University, Nigeria

ABSTRACT

The study examined the relationship between commercial property market and foreign
exchange markets in Nigeria from 2000 to 2010 with the aim of determining the effects
of Naira/US Dollar exchange rate volatility on commercial property returns in Nigeria.
This study was motivated by the progressive Naira/Dollar exchange rate regime and its
potential consequences on real estate investment decision making. The Exponential
Generalized Auto-Regressive Conditional Heteroscedasticity (EGARCH) was used in
establishing the relationship between exchange rate volatility and property investment
returns volatility in Nigeria. It was found that there exists a positive insignificant
relationship between commercial property returns and Naira/US Dollar exchange rate
movement in Nigeria. It was also discovered that there is volatility persistence of
exchange rate on commercial property returns which implies that current period rate
has an effect on the forecast variance of future rate. Leverage effect was not sufficiently
significant within the study period.

Key Words: exchange rate, volatility, commercial properties, leverage effect, volatility
persistence