Does Monetary Policy Affect Stock Market Return? Recent Evidence from the Nigerian Stock Exchange (1986-2018)

Main Article Content

Chinedu Maurice Umezurike
Felix Nwaolisa Echekoba
Amalachukwu Chijindu Ananwude

Abstract

The nexus between monetary policy and stock market return has remained a topic of debate in the literature. We determined whether stock market return in Nigerian Stock Exchange (NSE) is affected by monetary policy or not. To this end, we employed the Autoregressive Distribute Lag (ARDL) model using data from 1986 to 2018 bearing in mind that our conclusion in this subject matter may be used to make assertion by other researchers who have interest in this area of study in finance. We are convinced beyond reasonable doubt based on the data we employed that the stock market return in Nigeria is not significantly affected by adjustments in monetary policy instruments of the Central Bank of Nigeria (CBN): The apex regulator of the financial system in Nigeria. This paper wholeheartedly reflects the opinion that the Central Bank of Nigeria should consider reducing the current double digit monetary policy rate to a single digit say 9% at most to attract investments in the stock market. This would reduce the prime lending rate because, high interest rate reduces cash flows of firms quoted in the exchange, and thus contraction in values of securities traded on the market.

Keywords:
Monetary policy, stock market return, ARDL, Nigeria

Article Details

How to Cite
Umezurike, C. M., Echekoba, F. N., & Ananwude, A. C. (2019). Does Monetary Policy Affect Stock Market Return? Recent Evidence from the Nigerian Stock Exchange (1986-2018). South Asian Journal of Social Studies and Economics, 5(3), 1-8. https://doi.org/10.9734/sajsse/2019/v5i330147
Section
Original Research Article

References

Goswani G, Jung SC. Stock market and economic forces: Evidence from Korea. IMF Working Paper; 1997.
Available:http://papers.ssrn.com

Maku OF, Atanda AA. Determinants of stock market performance in Nigeria: Long-run analysis. Journal of Management and Organizational Behaviour. 2010;1(3): 1-16.

Mishkin FS. The economics of money, banking, and financial market. M.A.; 1997.

Ezeoha A, Uche C. Rethinking monetary and fiscal policies in Nigeria; 2010.
Available:http://papers.ssrn.com

Mersch Y. Monetary policy and time inconsistency in an uncertain environment. Speech by Mr Yves Mersch, Governor of the Central Bank of Luxembourg, at the Nobelux Seminar, Luxembourg; 2006.

Abaenewe ZC, Ndugbu MO. Analysis of the effect of monetary policy development on equity prices in Nigeria. West African Journal of Industrial and Academic Research. 2012;5(1):21-30.

Okpara GC. Monetary policy and stock market returns: Evidence from Nigeria. Classification Journal of Economics. 2010;1(1):13-21.

Chude NP, Chude DI. Effect of money supply in the stock market returns in Nigeria. Journal of Business and Organizational Development. 2013;5(2): 25-39.

Ibrahim TM, Agbaje OM. The long run relationships and dynamic interaction between stock returns and inflation in Nigeria. European Scientific Journal. 2013;9(4):45-60.

Aziza OF. The effects of monetary policy on stock market performance: A cross-country analysis; 2010.
Available:http://papers.ssrn.com

Nwaogwugwu IC. The effects of monetary and fiscal policy on the stock market in Nigeria. Journal of Economics and Development Studies. 2018;6(1):79-85.

Nwokoye ES, Otu E. Impact of monetary policy on stock market development: Implications for the Nigerian economy. International Journal of Development and Economic Sustainability. 2018;6(4):29-50.

Aliyu SUR. Reactions of stock market to monetary policy shocks during the global financial crisis: The Nigerian case. CBN Journal of Applied Statistics. 2013;3(1):17-41.

Nwakoby CIN, Alajekwu UB. Effect of monetary policy on Nigerian stock market performance. International Journal of Scientific Research and Management. 2016;4(9):4530-4442.

Echekoba FN, Okaro CSO, Ananwude AC, Akuesodo OE. Monetary policy and capital market performance: An empirical evidence from Nigerian data. Research Journal of Economics. 2017;1(3):1-5.

Ibenta SN. Investment analysis and financial management strategy. University of Nigeria, Enugu Campus, Nigeria; 2012.

Li S. A study on the relationship between monetary policy variables and stock market. International Journal of Business and Management. 2018;13(1):218-224.

Atis A, Erer D. The impact of monetary policy on stock returns during bull and bear markets: The evidence from Turkey. Ege Academic Review. 2018;18(4):699-710.

Bissoon R, Seetanah B, Bhattu-Babajee R, Gopy-Ramdhany N, Seetah K. Monetary policy impact on stock return: Evidence from growing stock markets. Theoretical Economics Letters. 2016;6:1186-1195.

Muthama MC. The relationship between stock market return and monetary policy decisions in Kenya. Master’s Thesis, University of Nairobi, Kenya; 2014.

Pesaran MH, Shin Y. An autoregressive distributed-lag modelling approach to co-integration analysis. Econometric Society Monographs. 1997;31:371-413.

Pesaran MH, Shin Y, Smith R. Bounds testing approaches to the analysis of level relationship. Journal of Applied Econometrics. 2001;16(3):289-326.

Galebotswe O, Tlhalefang JB. Monetary policy shocks and stock returns reactions: Evidence from Botswana; 2012.
Available:http://papers.ssrn.com

Osisanwo BG, Atanda AA. Determinant of stock market returns in Nigeria. A time series analysis. African Journal of Scientific Research. 2012;7(1):25-36.