Al-Hikmah University Journal

Stock return volatility plays a vital role in mobilising long term finance for the private and public sectors of any economy. Despite the exchange rate stability policy by the Central Bank of Nigeria (CBN), the Nigerian Stock Market still experience high volatile stock return and loss of investors’ confidence. The study examined the effect of foreign exchange rate dynamics on stock return volatility in the Nigerian Stock Market. E-GARCH was employed using monthly data sourced from the CBN within the period of January 2008 to March, 2020 for All Share Index, Inflation and Exchange Rates. The study revealed that foreign exchange rate dynamics and inflation rate inversely affect stock return volatility in the Nigerian Stock Market and recommended that the CBN and other monetary authorities should employ stringent measures to control overvaluation of foreign currencies against Nigerian local currency so as to truncate level of volatility in stock return in the Nigerian stock market.