EFFECT OF MACROECONOMIC DYNAMICS ON STOCK MARKET RETURN VOLATILITY IN NIGERIA: ARDL APPROACH

Abstract

The study looked at how macroeconomic factors influenced stock market return volatility in Nigeria. To achieve this goal, macroeconomic dynamics were proxied with Money Supply (MS), Interest Rate (INTR), Exchange Rate (EXCHR), Inflation Rate (INFLR), and Real Gross Domestic Product Growth Rate (RGDPGR), while stock market (SMKT) return volatility was proxied by All Share Index Volatility (ASIV). The information was gathered from the CBN Statistical Bulletin from 1985 to 2021. It was then analysed using Descriptive Statistics, Unit Root Test, and Autoregressive Distributive Lag (ARDL) analysis. The data demonstrated that MS has a positive inconsequential influence on ASIV in the short run but a positive consequential impact on ASIV in the long run, as shown by p-values (0.0588 and 0.0534) in the short and long runs, respectively; INTR has a negative impact on ASIV in both the short and long runs. It has p-values of 0.4590 and 0.0473, indicating no statistical significance in the short run but a substantial effect in the long run; EXCHR has a negative, insignificant impact on ASIV in both the short and long term. Its p-values (0.3071 and 0.3046) are also more than the 5% level of significance; INFLR has a detrimental impact on ASIV both short and long term. It has p-values of 0.1258 and 0.1374, indicating that there is no statistical significance in the short and long runs, and that RGDPGR has a positive impact on ASIV in both the short and long runs. It exhibits p-values of 0.5314 and 0.5293, indicating no statistical significance in the short and long term. As a result, it was determined that macroeconomic dynamics have no significant impact on SMKT return volatility in Nigeria. This means that politicians and regulators must ensure that the money supply and exchange rates remains steady overall. They should also endeavour to curb inflationary trends and keep interest rates constant in the economy so that the SMKT can perform better and achieve the desired economic growth and national development.
 Keywords: Macro, Economic, Dynamics, Stock, Market, Return and Volatility.