Unravelling the Impact of Macroeconomic Fundamentals on Stock Market Performance in Nigeria: An Ardl-bound Testing Approach

Abstract

In this study, we unravelled the impact of macroeconomic fundamentals on stock market performance in Nigeria for the periods from 1986 to 2015. This investigation helps to understand certain peculiarities in the Nigerian stock market; being an emerging stock market. Gross domestic product (GDP) and money supply (MS) was found to have significant impacts on stock market performance in Nigeria. Furthermore, all the features in this study except money supply (MS) and interest rate (INTR) were positively related to stock market performance, and there is the presence of a long run relationship (co-integration) between macroeconomic fundamentals and stock market performance. This study culled data on all-share index, gross domestic product, money supply, interest rate, inflation rate and exchange rate from the Nigerian Bureau of Statistics Bulletin, the Central Bank of Nigeria Statistical Bulletin and World Bank Development Indicators Database. Auto Regressive Distributed Lag (ARDL) bounds testing technique was adopted in this study as its estimation technique. Based on the findings of this study that the performance of the stock market in Nigeria is growth-driven, hence, policies such as reducing poverty and unemployment rates and increasing gross capital formation among others should be strengthened. We further recommend that the Central Bank of Nigeria should work hand-in-hand with the operators in the capital market in order to ensure a meaningful conduct of macroeconomic fundamentals through policy measures, and also by building a stronger regulatory framework for the stock market; especially to curtail unethical, shady and corrupt practices which can also make stock prices movement more drastic. In addition, interest rates channel must be effectively monitored to ensure that the stock market remains stable as any slight distortion in this channel may affect the market as it hinges on information, while it is also incumbent on the monetary authorities to monitor the implementation of formulated policies in the economy.