MACROECONOMIC INDICATORS AND THEIR IMPACTS ON STOCK MARKET RETURNS: EMPIRICAL ANALYSIS ON NIGERIAN STOCK EXCHANGE
Journal of Economics and Trade,
Page 1-21
DOI:
10.56557/jet/2022/v7i27949
Abstract
This study examines macroeconomic indicators and their impacts on stock market returns in Nigeria from 1986 to 2018. The study employs secondary data culled from the central bank of Nigeria's statistical bulletin. The paper utilized data techniques of the unit root test, Ordinary least square, the Johansen co-integration, the Pairwise Granger causality test, and the error correction model. The study shown a long-run relationship among market capitalization and macroeconomic indicators of inflation rate, interest rate, exchange rate, and money supply estimates for approximately 68% variations in market capitalization in the long run. The parsimonious error correction model which is rightly and significantly signed with a co-efficient of -0.454773 is an indication that over 45% variation in market capitalization can be corrected over a year using our selected independent variables. The Granger causality test shows absence of bidirectional relationship among any of our independent variables and market capitalization. The study recommends that appropriate interest rate policies should be initiated that will guide the operation in the capital markets as well as other macroeconomic indicators in view of demonstrated negative relationship between stock prices and interest rate. Also, authorities should implement policies which will reduce inflation Rate to a minimal level and to boast up standard of living in the countries.
Keywords:
- Nigerian stock exchange
- macroeconomic indicators
- co-integration
- OLS
- granger causality
- nigeria
How to Cite
ODICHE, W., ALUKPE, O. E., & AGU, K. (2022). MACROECONOMIC INDICATORS AND THEIR IMPACTS ON STOCK MARKET RETURNS: EMPIRICAL ANALYSIS ON NIGERIAN STOCK EXCHANGE. Journal of Economics and Trade, 7(2), 1-21. https://doi.org/10.56557/jet/2022/v7i27949
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Igoni S, Orlu L, Ezirim IU. Symbiotic Disclosure of Real Sector and Financial Sector: evidence in Nigerian GDP and Stock Capitalization. Asian Journal of Economics, Finance and Management. 2020;2(2):29-38.
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Osamwonyi IO, Evbayiro-Osagie EI. The relationship between macroeconomic variables and stock market index in Nigeria. Journal of Economics. 2012;3(1):55-63.
Olugbenga AA. Exchange rate volatility and stock market Behaviour. The Nigerian Experience. RJFA; 2012.
Oliver II, chike! N. Macroeconomic and share price movement in Nigeria Brewery Industry. Evidence from Nigeria Brewery plc.European journal of Accounting Auditing and Finance Research. 2014;2(5);19-32.
Basher oshoko. Analysis of macroeconomics indicators on economic growth. Empirical studies of Nigeria and China .Centre for integral social and economic Research, Lagos, Nigeria; 2018.
Igoni S, Onyejiaku CC, Egbo PO, Ifediora C, Njoku OB, Onwumere JUJ. Critical Evaluation of Stock Market Capitalization Response to Money Supply Management in the Nigerian Economy. International Journal of Advanced Science and Technology. 2020;26(12s):2433-2454.
Igoni S, Ogiri IH, Orlu L. Perceived Macroeconomic Factors and Stock Market Capitalization experience from the Nigerian Perspective. Asian Journal of Economics and Empirical Research. 2020;7(1):105-114.
Baridam DM. Research Methods in Administrative Sciences, Port Harcourt, Sherbrook’s Associates; 2008.
Nwamadi M. Characterization of an exopolymeric flocculent produced by a Brachybacterium sp. Materials. 2013;6(4):1237-1254.
Okoye AC. Capital Management and economic growth: a preliminary report of a case study of scavenging activity in Anambra State. Tropical Built Environment Journal. 2010;1(1):73-82.
Soludo CC. Can Nigeria be the China of Africa? Lecture Delivered at the Founders’ Day of the University of Benin, Nigeria. 2016;23.
Aneh. The strategic action plan framework for development. Reference. Global Nutrition Policy Review 2009-2010; 2013.
Gujarati DN, Porter DC. Basic Econometrics. (4th ed). New York. McGraw-Hill; 2003.
Ologunde AO. Stock market capitalization and interest rate in Nigeria: A time series analysis. International Research Journal of Finance and Economics. 2006;4(4):154-167.
Mohammad DS, Hussain A, Ali A. Impact of macroeconomics variables on stock prices: empirical evidence in case of KSE (Karachi Stock Exchange). European Journal of Scientific Research. 2009;38(1):96-103.
Okoli SO. The relationship between macroeconomic variables and stock returns in the tehran stock exchange. International Journal of Academic Research in Business and Social Sciences. 2012;2(6).
Sohail and Hussain. Long-run and short-run relationship between macroeconomics variables and stock prices in Pakistan. The case study of Lahore stock exchange. Pakistan Economic and Social Review. 2009;47(2):103-198
Barakat MR, Elgazzar SH, Hanafy KM. Impact of macroeconomic variables on stock markets: evidence. International Journal of Economics and Finance. 2016;8(1):195-207.
Igoni S, Orlu L, Ezirim IU. Symbiotic Disclosure of Real Sector and Financial Sector: evidence in Nigerian GDP and Stock Capitalization. Asian Journal of Economics, Finance and Management. 2020;2(2):29-38.
Abu-Libdeh H, Harasheh M. Testing for correlation and causality relationships between stock prices and macroeconomic variables: The case of Palestine securities exchange. International Review of Business Research Papers. 2011;7(5):141-154.
Kirui E, Wawire NH, Onon PO. Macroeconomic variables, volatility and market capitalization: A Case of Nairobi Securities Exchange, Kenya. International Journal of Economics and Finance. 2014;6(8):214-228.
Maysami RC, Howe LC, Hamzah MA. Examined the relationship between Macroeconomic Variables and Stock Market Indices: Cointegration Evidence from Stock Exchange of Singapore’s All-S Sector Indices. Journal Pengurusan. 2004;24(4):47-77.
Adarmola AO. The impact of macroeconomics indicators on stock prices in Nigeria. .The Nigeria Experience. Research journal of finance and Accounting. 2012;3(3):1-14.
Naik PK. Does stock market respond to Economic fundamentals? Time series Analysis from India. Journal of Applied Economic and Business Research. 2013;3(1):34-50.
Olweny T, Omondi K. The effect of macroeconomics factors on stock returns volatility in the Nairobi stock exchange, Kenya. Economics and Finance Review. 2011;1(1):34-48.
Sharpe, W. F. (1964). Capital Asset Prices: A Theory of Market Equilibrium under Conditions of Risk. Journal of Finance, 19(3), 425–442.
Lintner J. The valuation of Risk Assets and Selection of Risky Investments in Stock Portfolios and Capital Budgets. Review of Economics and Statistics. 1965;47:13-37.
Ross S. The arbitrage theory of capital asset pricing. Journal of Economic Theory. 1967;13:314-360.
Fama EF, French KR. The capital asset pricing model: theory and evidence. Journal of Economic Perspectives. 2004;18(3):25-46.
Chen N, Roll R, Ross S. Economic forces and the stock market. Journal of Business. 1986;59(3):383-403.
Izedonmi PF, Abdullahi BI. The effects of macroeconomic factors on the Nigerian Stock Returns: A Sectoral Approach. Global Journal of Management and Business Research. 2011;11(7):25-30.
Jecheche P. An empirical investigation of arbitrage pricing theory: Case of Zimbabwe. Research in Business and Economic Journal; 2006.
Agrawal R. Synopsis of the thesis submitted in fulfillment of the requirement for Doctor Degree. Department of Professional Development. Jaypee Institute of Information Technology. A-10,sector 62,Nolda India; 2010.
Mukherjee TK, Naka A. Dynamic relations between Macroeconomic Variables and the Japanese Stock Market: An application of a Vector Error Correction Model. The Journal of Financial Research. 1995;2:223-237.
Barbic T, Jurkic IC. Relationship between macroeconomic fundamentals and stock market indices in selected CEE Countries. Ekonomski Pregled. 2011;62(3-4):113-133.
Geetha C, Mohidin R, Chanciran VV, Chong V. The relationship between inflation and stock market: evidence from Malaysia. United States and China, International Journal of Economics and Management Sciences. 2011;1(2):01-16.
Hosseini SM, Ahmad Z, Lai YW. The role of macroeconomic variables on stock market index in China and India. International Journal of Economics and Finance. 2011;3(6);233-243.
Johansen S, Juselius C. Maximum likelihood estimation and inference on cointegration with applications to the demand for money. Oxford Bulletin of Economics and Statistics. 1990;52(2);169-210.
Oseni IO, Nwosa PI. Stock market volatility and macroeconomic variables volatility in Nigeria: An Exponential GARCH Approach. Journal of Economics and Sustainable Development. 2011;2(10).
Osamwonyi IO, Evbayiro-Osagie EI. The relationship between macroeconomic variables and stock market index in Nigeria. Journal of Economics. 2012;3(1):55-63.
Olugbenga AA. Exchange rate volatility and stock market Behaviour. The Nigerian Experience. RJFA; 2012.
Oliver II, chike! N. Macroeconomic and share price movement in Nigeria Brewery Industry. Evidence from Nigeria Brewery plc.European journal of Accounting Auditing and Finance Research. 2014;2(5);19-32.
Basher oshoko. Analysis of macroeconomics indicators on economic growth. Empirical studies of Nigeria and China .Centre for integral social and economic Research, Lagos, Nigeria; 2018.
Igoni S, Onyejiaku CC, Egbo PO, Ifediora C, Njoku OB, Onwumere JUJ. Critical Evaluation of Stock Market Capitalization Response to Money Supply Management in the Nigerian Economy. International Journal of Advanced Science and Technology. 2020;26(12s):2433-2454.
Igoni S, Ogiri IH, Orlu L. Perceived Macroeconomic Factors and Stock Market Capitalization experience from the Nigerian Perspective. Asian Journal of Economics and Empirical Research. 2020;7(1):105-114.
Baridam DM. Research Methods in Administrative Sciences, Port Harcourt, Sherbrook’s Associates; 2008.
Nwamadi M. Characterization of an exopolymeric flocculent produced by a Brachybacterium sp. Materials. 2013;6(4):1237-1254.
Okoye AC. Capital Management and economic growth: a preliminary report of a case study of scavenging activity in Anambra State. Tropical Built Environment Journal. 2010;1(1):73-82.
Soludo CC. Can Nigeria be the China of Africa? Lecture Delivered at the Founders’ Day of the University of Benin, Nigeria. 2016;23.
Aneh. The strategic action plan framework for development. Reference. Global Nutrition Policy Review 2009-2010; 2013.
Gujarati DN, Porter DC. Basic Econometrics. (4th ed). New York. McGraw-Hill; 2003.
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