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The Effect Of Monetary Policy On Stock Market Performance In Nigeria

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  • Osuagwu, Eze

Abstract

This paper investigates the impact of monetary policy variables on the performance of the stock market in Nigeria using quarterly data for twenty four years (1984:1 – 2007:4). A linear combination of stock market index and monetary policy variables is estimated using ordinary least squares; co-integration and error-correction specification. It is observed that stock market performance is strongly determined by broad money supply, exchange rates and consumer price index in the short and long-run. Hence, the liquidity, exchange rate and price level channel of monetary policy transmission is supported by evidence as determinants of stock price movements in Nigeria. On the other hand, minimum rediscount rate and treasury bill rates show mixed results, they were unable to demonstrate significant relationship to changes in stock market index, though their coefficients follow expectations. However, on a parsimonious examination of the variables, it is observed that a significant relationship exists if used discriminately. Hence, for the interest rate channel of monetary policy transmission to effect changes in stock market index either minimum rediscount rate or treasury bills rate should be applied at a time and not simultaneously.

Suggested Citation

  • Osuagwu, Eze, 2009. "The Effect Of Monetary Policy On Stock Market Performance In Nigeria," MPRA Paper 112934, University Library of Munich, Germany, revised Jul 2009.
    • Handle: RePEc:pra:mprapa:112934
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    References listed on IDEAS

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    Cited by:

    1. Pallegedara, Asankha, 2012. "Dynamic relationships between stock market performance and short term interest rate Empirical evidence from Sri Lanka," MPRA Paper 40773, University Library of Munich, Germany.
    2. GIMBA John Toro & VINCENT Harrison S. & OYEDOKUN Godwin Emmanuel, 2020. "Effect Of Monetary Policy On The Performance Of Listed Deposit Money Banks In Nigeria," Annals of Faculty of Economics, University of Oradea, Faculty of Economics, vol. 1(1), pages 482-503, July.

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    Keywords

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    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers

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