Empirical Analysis of Stock Market Development and Macroeconomic Indices in Nigeria

Abstract

This study examined the long-run relationship between stock market price and some macroeconomic indices in Nigeria. The time series data on stock market price, foreign exchange rate, inflation rate, broad money supply, corruption perception index, and credit to private sector between 1980 and 2021 were used for the study. The data were subjected to diagnostic tests before estimation. To this end, the autoregressive distributed lag method was used to estimate the model. The results of unit root and Johansen co-integration tests showed that stock market price in Nigeria is majorly influenced by macroeconomic factors in the long-run. All the included explanatory variables were found to have a significant effect on stock market price, except inflation and corruption perception index. It is recommended that the monetary authorities and policy makers should be more concerned about the changes in inflation rate due to its negative impact on stock price in Nigeria. To this end, unproductive borrowing by banking sector and/or public expenditure on unproductive items should be discouraged and, businessmen should pay attention to movement of foreign exchange rate, broad money supply and credit to private sector in their decision to invest in stock market in Nigeria.