Stock market performance and macroeconomic fundamentals in Nigeria

Abstract

The study examined the relationship between stock market performance and macroeconomic fundamentals in Nigeria. It employed the longitudinal research design, and secondary data sourced from the Central Bank of Nigeria statistical bulletin over the period of 1981 to 2018. Crude oil price, Consumer Price Index, Gross Domestic Product and Money Supply were the independent variables while Annual Market Capitalization of the Nigerian Stock Exchange was used as a proxy for stock market performance. Analytical techniques employed for this study included the Unit Root test, Co-integration test, Error Correction Model and Granger causality test. The study found a significant and positive relationship between LNCOP, LNMS and LNAMC; a significant but negative relationship between CPI and LNAMC while an insignificant but positive relationship was observed between LNGDP and LNAMC. Further, a long-run relationship exists among the variables; thus, disequilibrium in stock market is offset by long-run changes in macroeconomic fundamentals. In addition, a unidirectional relationship exists between LNAMC and LNGDP; bidirectional relationship exist between LNMS and LNAMC, and CPI and LNAMC; but no causality exist between LNCOP and LNAMC. Based on these findings, the study recommends for increased output by way of encouraging more investments in the stock market. In addition, the stock market should improve on information dissemination so as to enlighten corporate organizations about access to longterm funds that will enable them increase stock market activities.