External macroeconomic shocks and stock price behavior in Nigeria

Mojeed Olanrewaju Saliu

doi:10.20525/ijrbs.v10i6.1333

Abstract

This research work investigates the relationship between external macroeconomic shocks and stock price behavior in Nigeria. Variables such as exchange rate (EXR), US real interest rate (USRINTR), and world oil price (WOP) are adopted to capture external macroeconomic shocks while all share price index is used to proxy stock price. The research work uses Johansen cointegration and structural vector autoregressive model as the estimation method. Findings from the study confirm that no long-term co-movement exists between the stock price and the selected external shocks. Findings from the study equally show that both US real interest rate (USRINTR) and world oil price (WOP) are the major external shock predictors of the stock price in Nigeria.

Highlights

Mobilization and effective management of domestic resources are crucial for the pursuit of self-sustaining development which are central to the attainment of economic growth and eradication of poverty in any country
In order to have a robust clarification of the contributions of external shocks to the behavior of stock price in Nigeria, the results of variance decomposition were shown in table 3
Results from the structural vector autoregressive model (SVAR) impulse response function confirmed that a standard deviation innovation from both US real interest rate (USRINTR) and world oil price (WOP) inflicted negative and significant impacts on Nigerian stock price

Summary

Introduction

Mobilization and effective management of domestic resources are crucial for the pursuit of self-sustaining development which are central to the attainment of economic growth and eradication of poverty in any country. Financial system is the institution and operation that mobilize financial resources from surplus spending sectors and channel these resources to the deficit spending sectors for productive use (Barakat, Elgazzar and Hanafy, 2016). In this regard, stock market is part of the financial system that mobilizes and provides long-term finances for sustainable development of a country. With the help of sound and viable stock markets, infant companies could be able to mobilize funds for the purpose of their investment start-up. Stock markets provide a solid base upon which listed companies pool the much-needed long-term capital for their economically viable investment (Giri and Joshi, 2017)

Results

Discussion

Conclusion