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Effects of Exchange Rate, Interest Rate, and Inflation on Stock Market Returns Volatility in Nigeria

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  • Izunobi Anthony Okechukwu

    (Department of Financial Management Technology, Federal University of Technology Owerri, Nigeria)

  • Nzotta Samuel Mbadike

    (Department of Financial Management Technology, Federal University of Technology Owerri, Nigeria)

  • Ugwuanyim Geoffrey

    (Department of Statistics. Federal University of Technology Owerri)

  • Benedict Anayochukwu Ozurumba

    (Department of Financial Management Technology, The Federal University of Technology Owerri)

Abstract

TThis study employed GARCH (1.1) techniques to evaluate the existence of high stock market returns volatility, and the impact of the exchange rate, interest rate and inflation on stock market returns in Nigeria, using monthly series data from 1995 – 2014. Excessive volatility hinders the stock market from playing its role of Mobilizing, financial resources from surplus units to deficit units and may cause a financial crisis. The research finding shows that interest rate has a negative relationship with stock market returns, while the inflation rate and exchange rate have a positive relationship with stock market returns. The conclusion therefore is, there is high and persistent volatility in the Nigerian stock market returns. Exchange rate, interest rate, and inflation significantly impact stock market return volatility in Nigeria. The study recommends that regulatory authorities should take proactive steps to minimize stock market return in order to restore confidence in the market.

Suggested Citation

  • Izunobi Anthony Okechukwu & Nzotta Samuel Mbadike & Ugwuanyim Geoffrey & Benedict Anayochukwu Ozurumba, 2019. "Effects of Exchange Rate, Interest Rate, and Inflation on Stock Market Returns Volatility in Nigeria," International Journal of Management Science and Business Administration, Inovatus Services Ltd., vol. 5(6), pages 38-47, September.
    • Handle: RePEc:mgs:ijmsba:v:5:y:2019:i:5:p:38-47
    DOI: 10.18775/ijmsba.1849-5664-5419.2014.56.1005
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    References listed on IDEAS

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    1. John Y. Campbell & Martin Lettau & Burton G. Malkiel & Yexiao Xu, 2001. "Have Individual Stocks Become More Volatile? An Empirical Exploration of Idiosyncratic Risk," Journal of Finance, American Finance Association, vol. 56(1), pages 1-43, February.
    2. Nelson, Daniel B, 1991. "Conditional Heteroskedasticity in Asset Returns: A New Approach," Econometrica, Econometric Society, vol. 59(2), pages 347-370, March.
    3. Campbell, John Y, 1996. "Understanding Risk and Return," Journal of Political Economy, University of Chicago Press, vol. 104(2), pages 298-345, April.
    4. Sydney C. Ludvigson & Charles Steindel, 1999. "How important is the stock market effect on consumption?," Economic Policy Review, Federal Reserve Bank of New York, vol. 5(Jul), pages 29-51.
    5. Emenike Kalu O. & Odili Okwuchukwu, 2014. "Stock Market Return Volatility and Macroeconomic Variables in Nigeria," International Journal of Empirical Finance, Research Academy of Social Sciences, vol. 2(2), pages 75-82.
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    Cited by:

    1. Kanu Success Ikechi & Nwadiubu Anthony, 2020. "Exchange Rate Volatility and International Trade in Nigeria," International Journal of Management Science and Business Administration, Inovatus Services Ltd., vol. 6(5), pages 56-72, July.
    2. P. K. Mishra & S. K. Mishra, 2022. "Is the Impact of COVID-19 Significant in Determining Equity Market Integration? Insights from BRICS Economies," Global Journal of Emerging Market Economies, Emerging Markets Forum, vol. 14(2), pages 137-162, May.

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    More about this item

    Keywords

    Inflation rates; Exchange rates; Interest rates; Stock market return volatility and monthly series;
    All these keywords.

    JEL classification:

    • M00 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - General - - - General

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