Selected Macroeconomic Indicators and Stock Market Performance in a Developing Economy: A Case for the Nigeria Stock Exchange Market

Abstract

The question of whether or not stock prices can be predicted by macroeconomic indicators in an economy is of serious concern both to the academics as well as the practitioners all over the world. There have been controversies among scholars, researchers and finance professionals with regards to what triggers the movement in the stock prices and it is against this backdrop, that this study investigated the effect of some selected macroeconomic indicators on stock market performance in a developing economy using Nigeria Stock Exchange Market as its case study with specific objectives. ARDL model helps to estimate the level of impact that one variable has on the other using E-views 10 statistical software.

Result found that ASI was found to be negative for the current year and one year lag period while INF was equally negative and is insignificant for the current year and the previous year, while in the long run, Inflation Rate showed a positive relationship with ASI, but insignificant at 5% level of significance. On the other hand, the long run estimates of M2 had a positive relationship with ASI in the long run and also shows to be a significant contributor to All Share Index at 5% level of significance while RGDP had a negative relationship with All Share Index and also significant in the long run. Furthermore, EXCR was found to be negative for the current year, also in the previous year and lag 2 period while in the long run, EXCR had a positive relationship with ASI while RINTR was positively and significantly impacting ASI in the current year even though it negatively impacted on ASI in the previous year's i.e. lag one and lag 2 and finally, Real Lending Rate was found to have a positive relationship with All Share Index in the long run but statistically insignificant at 5% level of significance and based on this findings, they study recommended the following; the CBN should through their monetary and fiscal policy implement actions that would ensure interest rate stability and prevent frequent increase in rates which has potentials to distort stock market activities in Nigeria and also must continue to pursue policies that would promote stable exchange rates and also attract foreign capital inflow that would ensure regular supply of forex.