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Stock Market Reaction to Monetary Policy Modifications: Evidence from an Emergent Market

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  • Cordelia Onyinyechi Omodero
  • Dorcas Titilayo Adetula
  • Kingsley Adeyemo

Abstract

This study evaluates the stock market reaction to monetary policy modifications in an emerging market using Nigeria as a case study. Due to the crucial role the stock market plays in the global economy and finance, it becomes an attraction for most researchers and policymakers who try to find a basis for its smooth operation. This study uses data that cover a period from 1998 to 2018 to establish what the position is in recent times empirically. The data are collected on all share index, money supply, interest rate and exchange rate. The multiple regression results provide evidence that the money supply has a significant favourable influence on the all-share index. In contrast, the interest rate has an immaterial harmful effect on the stock market output. However, the result indicates that the exchange rate affects the stock market performance negatively, but the effect is insignificant. Based on these findings, the study suggests pilot test running of all monetary policy amendments by the monetary authority in the country before full implementation. The government should encourage the CBN to cut down on interest rate and avoid all policies that will lead to a crash in the Nigerian stock market.

Suggested Citation

  • Cordelia Onyinyechi Omodero & Dorcas Titilayo Adetula & Kingsley Adeyemo, 2021. "Stock Market Reaction to Monetary Policy Modifications: Evidence from an Emergent Market," Academic Journal of Interdisciplinary Studies, Richtmann Publishing Ltd, vol. 10, May.
    • Handle: RePEc:bjz:ajisjr:2051
    DOI: https://doi.org/10.36941/ajis-2021-0064
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    References listed on IDEAS

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    1. Santanu Pal & Ajay K Garg, 2019. "Macroeconomic surprises and stock market responses—A study on Indian stock market," Cogent Economics & Finance, Taylor & Francis Journals, vol. 7(1), pages 1598248-159, January.
    2. Ekong, Christopher N. & Onye, Kenneth U., 2016. "Essay on Stock Market Performance and Dynamic Reactions to Monetary Policy Shocks in Nigeria," MPRA Paper 88319, University Library of Munich, Germany.
    3. Jordi Galí & Luca Gambetti, 2015. "The Effects of Monetary Policy on Stock Market Bubbles: Some Evidence," American Economic Journal: Macroeconomics, American Economic Association, vol. 7(1), pages 233-257, January.
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