Abstract
This paper investigates the impact of output growth, interest rate and inflation rate on stock market returns both in the short run and long run using time series data for Nigeria for the period from 1986 to 2012. Using ordinary least squares (OLS), cointegration test and granger causality, the study findings suggest that NSE-All share index, inflation rate, interest rate and real GDP move together in the long run. Also, we found that interest rate and output growth have significant role on stock market return and performance. This suggests that interest rate represents alternative investment opportunities. Finally, we infer from the causality test that NSE-All Share Index has a feed-back effect on the rate of inflation and real gross domestic product and found a support for fisher effect for Nigeria.
Highlights
Stock markets play an important role in the financial sector development of any economy, especially in developing economies
This paper investigates the impact of output growth, interest rate and inflation rate on stock market returns both in the short run and long run using time series data for Nigeria for the period from 1986 to 2012
Using ordinary least squares (OLS), cointegration test and granger causality, the study findings suggest that Nigeria Stock Exchange (NSE)-All share index, inflation rate, interest rate and real GDP move together in the long run
Summary
Stock markets play an important role in the financial sector development of any economy, especially in developing economies. Following an increasing amount of empirical evidence obtained by many researchers, we might conclude that a range of financial and macroeconomic variables predict stock market returns and performance. In the study of Wongbampo and Sharma (2002) using five macroeconomic variables for Malaysia, Indonesia, Philippines, Singapore and Thailand showed that in the long run all the five stock price indexes were positively related to growth in output and inversely related to the aggregate price level.
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