Does Monetary Policy Affect Stock Market Return? Recent Evidence from the Nigerian Stock Exchange (1986-2018)
Chinedu Maurice Umezurike
Department of Banking and Finance, The Federal Polytechnic, P.M.B. 1012, Kaura Namoda, Zamfara State, Nigeria.
Felix Nwaolisa Echekoba
Department of Banking and Finance, Nnamdi Azikiwe University, P.M.B 5025, Awka, Anambra State, Nigeria.
Amalachukwu Chijindu Ananwude
Department of Banking and Finance, Nnamdi Azikiwe University, P.M.B 5025, Awka, Anambra State, Nigeria.
*Author to whom correspondence should be addressed.
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