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Macroeconomic Variables and Capital Market Performance: Evidence from Nigeria

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  • Oliver Ike Inyiama
  • Michael Chidiebere Ekwe

Abstract

The study aims at determining the causalities, correlation, cointegration and the relationship between the Nigeria Stock Exchange All Share Index(ASI), which is the proxy for capital market performance and macroeconomic variables proxied by monetary policy rate, inflationary rate, foreign exchange rate and real gross domestic product from 1985 to 2013. Granger Causality procedure was applied in determining the causalities, multiple regression model in the form of Ordinary Least Square (OLS) method was applied in evaluating the relationship between the dependent and independent variables while correlation technique was applied in ascertaining the strength of the relationship. Johansen cointegration procedure was applied in testing the sustainability of the relationship in the long run. To test for stationary of the data series, the Augmented Dickey Fuller (ADF), Phillips-Perron (PP) and the Kwiatkowski-Phillips-Schmidt-Shin (KPSS) procedures were applied. All the series were non stationary. Except for real gross domestic product which was differenced at second difference, all the other variables were differenced at first difference. Inflationary rate, exchange rate and the log of real GDP are negatively but insignificantly related to the log of All Share Index while interest rate is positively but not significantly related to All Share Index. No causality was revealed in lag 2 but in lag 1, there is a unidirectional causality running from log of All Share Index to foreign exchange rate. Johansen cointigration reveals a long run relationship among the variables. The implication of the findings is that effective regulation of macroeconomic policies, in the direction of the findings of this study, could impact positively on the performance of the capital market.

Suggested Citation

  • Oliver Ike Inyiama & Michael Chidiebere Ekwe, 2014. "Macroeconomic Variables and Capital Market Performance: Evidence from Nigeria," International Journal of Financial Economics, Research Academy of Social Sciences, vol. 2(3), pages 129-141.
    • Handle: RePEc:rss:jnljfe:v2i3p4
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    1. Abeyratna Gunasekarage & Anirut Pisedtasalasai & David M. Power, 2004. "Macroeconomic Influence on the Stock Market: Evidence from an Emerging Market in South Asia," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 3(3), pages 285-304, December.
    2. Granger, Clive W J, 1986. "Developments in the Study of Cointegrated Economic Variables," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 48(3), pages 213-228, August.
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