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Monetary policy shocks and stock market prices volatility in Nigeria

Author

Listed:
  • Adeniji, Sesan

    () (Department of Economics, University of Abuja, Nigeria.)

  • Obansa , S. A. J.

    (Department of Economics, University of Abuja, Nigeria.)

  • Okoroafor, David

    (Department of Economics, University of Abuja, Nigeria.)

Abstract

This study empirically analyzes the impact of monetary policy shocks on stock market prices volatility in Nigeria using time series data for the period of June 1999 to December 2016. The model developed is analyzed using autoregressive distributed lag (ARDL) model and exponential generalized conditional heteroscedasticity (EGARCH) model. The findings from the study show that there is a strong and positive relationship between monetary policy shocks and stock market prices volatility in Nigeria. However, only interest rate, among the monetary policy variables examined, is significant in explaining the stock market prices volatility in both the short and long run, while M1 is significant only in the short run. The implication is that the Central Bank might be able to influence stock market volatility and the efficiency in the stock market through better communication or increased transparency. We therefore recommend that, monetary policy decision should be an all-round engagement and not a periodic activity so as to ensure immediate response to prevailing economic conditions for prompt corrective measures.

Suggested Citation

  • Adeniji, Sesan & Obansa , S. A. J. & Okoroafor, David, 2018. "Monetary policy shocks and stock market prices volatility in Nigeria," Business and Economic Quarterly, International Society for Business & Economics, vol. 3, pages 3-26.
  • Handle: RePEc:ris:buecqu:0005
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    More about this item

    Keywords

    Stock prices; Monetary policy; Volatility; ARDL; EGARCH;

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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