Macroeconomic Determinants of Stock Market Performance in Nigeria: An Econometric Approach

Abstract

This paper examined the macroeconomic determinants of stock market performance in Nigeria using annual time series data spanning 1981 to 2016. The data were obtained from Central Bank of Nigeria (CBN) Statistical Bulletin. Four macroeconomic variables, namely: money supply, interest rate, exchange rate and inflation rate were used as independent variables, while market capitalisation (proxy for stock market performance) was employed as the dependent variable. The results of Jarque-Bera (JB) test showed that all the data series used in the study were normally distributed. The results of Augmented Dickey-Fuller (ADF) test revealed that all the variables studied were stationary at first difference except money supply which was stationary at second difference. The Ordinary Least Square (OLS) regression results showed that money supply has a significant positive effect; interest rate has a significant negative effect; whereas, exchange rate and inflation rate have no statistically significant effect on stock market performance in Nigeria. The cointegration test results disclosed that there exists a cointegrating relationship between the macroeconomic indicators and stock market performance. This implies that there is a long-run relationship between the variables. The Granger Causality test results revealed that a unidirectional causality runs from money supply and exchange rate to stock market performance. Therefore, the study concluded that money supply and interest rate are the true determinants of stock market performance in Nigeria.