Macroeconomic Parameters and Stock Performance: A Study of Nigerian Stock Exchange

Abstract

Literatures have not been able to provide a consensus of the impact of macroeconomic variables on the stock market performance which is largely considered as a vital component of any nation’s financial system in attracting and allocating capital to the productive sectors of the economy. This study used the Augmented Dickey-Fuller test and Phillips-Perron test to test for unit root and stationarity in the model. The study also made use of Jargue-Bera to test for normality distribution. The study adopted the All Share Index of the Nigerian Stock Exchange as a proxy for the stock market as the dependent variables. The independent variables examined are Gross Domestic Product. Inflation Rate, Foreign Exchange Rate and Interest Rate. The observed that with the exception of Foreign Exchange rate all the independence variable are significantly correlated to the stock market performance (ASI). It is therefore evident from the various regression statistics observed by this study that a very strong relationship actually exists between the macroeconomic variables and the performance of the Nigerian stock market. The policy makers should ensure that policies that determine the behavior of the macroeconomic variables such as interest rates, foreign exchange rate and inflation rates are made favourable for the components of the financial system so that the required capital for long-term economic growth and development can be attracted from both the local and foreign investors.

Key words: Economic Growth, All Share Index, Macroeconomic Variables, Stock Market, Coefficient of Correlation