Journal of Applied Finance & Banking, vol. 6, no. 6, 2016, 57-70 ISSN: 1792-6580 (print version), 1792-6599 (online) Scienpress Ltd, 2016 Exchange Rate and Inflation Volatility and Stock Prices Volatility: Evidence from Nigeria, 1986-2012 Emeka Nkoro 1 and Aham Kelvin Uko 1 Abstract This study investigated the relationship between exchange rate and inflation volatility and stock prices volatility in Nigeria, using time series quarterly data from 1986Q1-2012Q4. The volatilities of exchange rate and inflation in this study were calculated using standard GARCH(1,1) models. The relationship between exchange rate, inflation volatility and stock prices volatility was examined using GARCH(1,1)-S models of an extended GARCH-X models. The findings of the study show that there is a negative relationship between stock market prices volatility and exchange rate and inflation volatility in Nigeria. This result has an important implication for the investors and regulators in the stock market. Investors and regulators in the Nigeria stock market should take note of the systematic risks revealed by the exchange rate and inflation volatility when structuring their investment portfolios and diversification strategies as well as in formulating policies respectively. JEL classification numbers: G1, G11, G12, G14, G17 Keywords: Exchange Rate, Inflation, Stock Prices, Volatility. 1 Introduction The Nigerian stock market has recorded significant losses as indicated by its stock prices volatility. At the same time, we have been experiencing fluctuations in inflation and exchange rate. The volatility of inflation and exchange rate have 1 Department of Economics, University of Port Harcourt, Port Harcourt, Nigeria Article Info: Received : July 23, 2016. Revised : September 11, 2016. Published online : November 1, 2016