STOCK MARKET PERFORMANCE AND MACROECONOMIC FUNDAMENTALS IN NIGERIA

Abstract

Motivated by the need to examine the relationship between stock market performance and macroeconomic fundamentals in Nigeria, the study employed the ex post facto research design and deployed secondary data sourced from the Central Bank of Nigeria statistical bulletin over the period of 1981 to 2018. Crude oil price (COP), Consumer Price Index (CPI). Gross Domestic Product (GDP) and Money Supply (MS) were the research’s independent variables while the Annual Market Capitalization (AMC) of the Nigerian Stock Exchange was used as a proxy for stock market performance. Analytical techniques employed for this study included the Unit Root test, Johansen’s Cointegration, Error Correction Model, and Granger causality test. The study found a significant positive relationship between COP, MS, and AMC, a significant negative relationship between CPI and AMC, and a significant relationship observed between GDP and AMC. It revealed further the presence of a long-run relationship between the dependent and independent variables and that disequilibrium in the stock market is offset by changes in macroeconomic fundamentals studied in the long run. It also revealed a unidirectional relationship between AMC and MS, a bidirectional relationship between GDP and AMC, and no causality between COP, CPI, and AMC. The study recommends the need for increased output since it is what constitutes a country’s GDP which is a vital factor investors look at before investing in a stock market, on the other hand, the stock market should improve on its information dissemination function to enlighten corporate organizations about their core function which if properly utilized, will give corporate organizations access to long-term funds that will enable them to increase stock market performance.