Effect of macroeconomic variables on stock market performance in Nigeria

Abstract

The study examined the effect of macroeconomic variables on stock market performance in Nigeria. The proxies for the independent variable (macroeconomic variables) were broad money supply, all-share index, financial deepening and interest rate. On the other hand, the proxy for the dependent variable (stock market performance) was total market capitalisation. The study adopted ex-post facto research design. The source of data was time series secondary data collected from the Central Bank of Nigeria (CBN) Statistical Bulletin from 1990 - 2022. The study has thirty – two (33) observations. The method of data analysis employed in this study includes descriptive statistics and correlation analysis and unit root test. Auto-regressive distributed lag model (ARDL) technique was used to evaluate the relationship between macroeconomic variables on stock market performance.  The findings of the study revealed that the lag broad money supply has significant effect on total market capitalization of the stock market. Also, all share index has significant effect on total market capitalization of the stock market. Furthermore, the lagged financial deepening has significant effect on total market capitalization of the stock market; and interest rate has not significant effect on total market capitalization of the stock market. The study recommended that policymakers should closely monitor and manage fluctuations in the money supply to ensure stability and growth in the Nigerian Exchange. Diversification strategies across sectors can help mitigate risks and capitalize on opportunities presented by fluctuations in the Nigerian Exchange. Also, policymakers and financial institutions should prioritize initiatives aimed at deepening the financial sector. Policymakers should carefully consider the potential implications of interest rate changes on investor confidence and market liquidity.