Macroeconomic Determinants of Stock Market Performance in Nigeria, 1986-2016

Abstract

The paper is part of larger research agenda with the purpose of exploring some of the determinants of stock market in Nigeria for the period 1986-2016. The variables employed included market capitalization, per capita income, interest rate, exchange rate, inflation and the economy level of openness. The econometric methodology is error correction model and the paper finds that interest rate, inflation rate and past level of market capitalization were the major determining factors for trading activities at the Nigerian Stock Exchange. The paper also finds a negative relationship between stock market performance and inflation, interest rate as well as per capita income. Among other things, the paper recommends that the monetary authority should ensure moderate interest rate that encourages investment even as the current double digit inflation in the economy should be checked.

Keywords: Nigerian Stock Exchange, Stock Market, Co-integration and Error Correction Model