IDEAS home Printed from https://ideas.repec.org/a/blg/journl/v13y2018i2p69-91.html
   My bibliography  Save this article

A Time Series Analysis Of The Nexus Between Macroeconomic Fundamentals And Stock Prices In Nigeria

Author

Listed:
  • DITIMI Amassoma

    (Federal University Oye-Ekiti, Nigeria)

  • IFEOLUWA Bolarinwa

    (Federal University Oye-Ekiti, Nigeria)

Abstract

Since macroeconomic fundamentals have been found to play a vital role for changes in the economy of a country. Consequently, the onus is on the appropriate regulatory authorities to take measures in making amendments in these policies to put the economy on the right development track. The aim of this study is to use time series analysis to empirically showcase the nexus between macroeconomic fundamentals and stock prices in Nigeria. The method used for this study was the Co-integration test and the EGARCH technique to estimate the possible influence of the selected macroeconomic fundamentals on stock prices. Volatility was captured by using quarterly data and estimated using GARCH (1,1) respectively. The study found there is a positive relationship between macroeconomic factors and stock prices in Nigeria. Therefore, the study recommends that the Federal authority should put in place policy measures that will enable the exchange rate to be relatively stabilized. This is because empirical evidence from studies has shown that exchange rate affects stock market prices. In addition, the government authority should ensure an enabling environment that would build the mindset of institutional investors in the Nigerian stock market due to the existence of information asymmetry problems among potential investors.

Suggested Citation

  • DITIMI Amassoma & IFEOLUWA Bolarinwa, 2018. "A Time Series Analysis Of The Nexus Between Macroeconomic Fundamentals And Stock Prices In Nigeria," Studies in Business and Economics, Lucian Blaga University of Sibiu, Faculty of Economic Sciences, vol. 13(2), pages 69-91, August.
  • Handle: RePEc:blg:journl:v:13:y:2018:i:2:p:69-91
    as

    Download full text from publisher

    File URL: http://eccsf.ulbsibiu.ro/RePEc/blg/journl/13206ditimi&ifeoluwa.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Olayinka Olufisayo Akinlo, 2015. "Impact of Foreign Exchange Reserves on Nigerian Stock Market," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 9(2), pages 69-76.
    2. Kaul, Gautam, 1987. "Stock returns and inflation : The role of the monetary sector," Journal of Financial Economics, Elsevier, vol. 18(2), pages 253-276, June.
    3. Nelson, Daniel B, 1991. "Conditional Heteroskedasticity in Asset Returns: A New Approach," Econometrica, Econometric Society, vol. 59(2), pages 347-370, March.
    4. Grossman, Sanford J & Shiller, Robert J, 1981. "The Determinants of the Variability of Stock Market Prices," American Economic Review, American Economic Association, vol. 71(2), pages 222-227, May.
    5. Stephen A. Ross, 2013. "The Arbitrage Theory of Capital Asset Pricing," World Scientific Book Chapters, in: Leonard C MacLean & William T Ziemba (ed.), HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part I, chapter 1, pages 11-30, World Scientific Publishing Co. Pte. Ltd..
    6. Hamburger, Michael J & Kochin, Levis A, 1972. "Money and Stock Prices: The Channels of Influence," Journal of Finance, American Finance Association, vol. 27(2), pages 231-249, May.
    7. Firth, Michael, 1979. "The Relationship between Stock Market Returns and Rates of Inflation," Journal of Finance, American Finance Association, vol. 34(3), pages 743-749, June.
    8. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
    9. Adam, Anokye M. & Tweneboah, George, 2008. "Macroeconomic Factors and Stock Market Movement: Evidence from Ghana," MPRA Paper 11256, University Library of Munich, Germany.
    10. Gjerde, Oystein & Saettem, Frode, 1999. "Causal relations among stock returns and macroeconomic variables in a small, open economy," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 9(1), pages 61-74, January.
    11. Peter Sellin, 2001. "Monetary Policy and the Stock Market: Theory and Empirical Evidence," Journal of Economic Surveys, Wiley Blackwell, vol. 15(4), pages 491-541, September.
    12. Granger, C. W. J. & Newbold, P., 1974. "Spurious regressions in econometrics," Journal of Econometrics, Elsevier, vol. 2(2), pages 111-120, July.
    13. Tarun K. Mukherjee & Atsuyuki Naka, 1995. "Dynamic Relations Between Macroeconomic Variables And The Japanese Stock Market: An Application Of A Vector Error Correction Model," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 18(2), pages 223-237, June.
    14. Kamran Khan & Israr Ahmed, 2015. "Impact of Stock Prices on Macroeconomic Variables: Evidence from Pakistan," KASBIT Business Journals (KBJ), Khadim Ali Shah Bukhari Institute of Technology (KASBIT), vol. 8(1), pages 42-59, May.
    15. Ramin Bashir Khodaparasti, 2014. "The Role Of Macroeconomic Variables In The Stock Market In Iran," Polish Journal of Management Studies, Czestochowa Technical University, Department of Management, vol. 10(2), pages 54-64, December.
    16. Sara Alatiqi & Shokoofeh Fazel, . "Can Money Supply Predict Stock Prices?," Journal for Economic Educators, Middle Tennessee State University, Business and Economic Research Center.
    17. Mukherjee, Tarun K & Naka, Atsuyuki, 1995. "Dynamic Relations between Macroeconomic Variables and the Japanese Stock Market: An Application of a Vector Error Correction Model," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 18(2), pages 223-237, Summer.
    18. Johansen, Søren & Juselius, Katarina, 1992. "Testing structural hypotheses in a multivariate cointegration analysis of the PPP and the UIP for UK," Journal of Econometrics, Elsevier, vol. 53(1-3), pages 211-244.
    19. Maysami, Ramin Cooper & Koh, Tiong Sim, 2000. "A vector error correction model of the Singapore stock market," International Review of Economics & Finance, Elsevier, vol. 9(1), pages 79-96, February.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Nawal Hussein Abbas Elhussein & Elzibeer Fath Elrahman Hamed Warag, 2020. "Economic Forces and the Stock Market Performance in Developing Countries: Evidence From Sudan," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 11(4), pages 130-143, July.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Emeka Nkoro & Aham Kelvin Uko, 2013. "A Generalized Autoregressive Conditional Heteroskedasticity Model of the Impact of Macroeconomic Factors on Stock Returns: Empirical Evidence from the Nigerian Stock Market," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 4(4), pages 38-51, October.
    2. Martin Širůček, 2012. "Effect of money supply on the Dow Jones Industrial Average stock index," Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis, Mendel University Press, vol. 60(2), pages 399-408.
    3. Arshad Hasan & M. Tariq Javed, 2009. "An Empirical Investigation of the Causal Relationship among Monetary Variables and Equity Market Returns," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 14(1), pages 115-137, Jan-Jun.
    4. Širůček, Martin, 2015. "Kauzalní vztah peněžní nabídky a amerického akciového trhu [Money supply and US stock market causality]," MPRA Paper 66357, University Library of Munich, Germany, revised 30 Aug 2015.
    5. Kishor K. Guru-Gharana & Matiur Rahman & Anisul M. Islam, 2021. "Japan s Stock Market Performance: Evidence from Toda-Yamamoto and Dolado-Lutkepohl Tests for Multivariate Granger Causality," International Journal of Economics and Financial Issues, Econjournals, vol. 11(3), pages 107-122.
    6. Manamba EPAPHRA & Evidence SALEMA, 2018. "The impact of macroeconomic variables on stock prices in Tanzania," Journal of Economics Library, KSP Journals, vol. 5(1), pages 12-41, March.
    7. Ahmad Hamidi, Hakimah Nur & Khalid, Norlin & Abdul Karim, Zulkefly, 2018. "Revisiting Relationship Between Malaysian Stock Market Index and Selected Macroeconomic Variables Using Asymmetric Cointegration," Jurnal Ekonomi Malaysia, Faculty of Economics and Business, Universiti Kebangsaan Malaysia, vol. 52(1), pages 311-319.
    8. Pooja Joshi & Arun Kumar Giri, 2015. "Fiscal Deficits and Stock Prices in India: Empirical Evidence," IJFS, MDPI, vol. 3(3), pages 1-18, August.
    9. Subrata ROY, 2020. "Foreign trade policy and economic growth: Indian evidence," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania / Editura Economica, vol. 0(3(624), A), pages 107-126, Autumn.
    10. Md. Abu HASAN, 2017. "Efficiency and Volatility of the Stock Market in Bangladesh: A Macroeconometric Analysis," Turkish Economic Review, KSP Journals, vol. 4(2), pages 239-249, June.
    11. Ram Chandra Bhattarai & Nayan Krishna Joshi, 2009. "Dynamic Relationship among the Stock Market and the Macroeconomic Factors," South Asia Economic Journal, Institute of Policy Studies of Sri Lanka, vol. 10(2), pages 451-469, July.
    12. Sirucek, Martin, 2012. "Macroeconomic variables and stock market: US review," MPRA Paper 39094, University Library of Munich, Germany.
    13. Muhammed Monjurul Quadir, 2012. "The Effect of Macroeconomic Variables On Stock Returns on Dhaka Stock Exchange," International Journal of Economics and Financial Issues, Econjournals, vol. 2(4), pages 480-487.
    14. Kwame Mireku & Kwaku Sarkodie & Kwasi Poku, 2013. "Effect of Macroeconomic Factors on Stock Prices in Ghana: A Vector Error Correction Model Approach," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 3(2), pages 32-43, April.
    15. Bhuiyan, Erfan M. & Chowdhury, Murshed, 2020. "Macroeconomic variables and stock market indices: Asymmetric dynamics in the US and Canada," The Quarterly Review of Economics and Finance, Elsevier, vol. 77(C), pages 62-74.
    16. Abbas Ghulam & Bhowmik Roni & Koju Laxmi & Wang Shouyang, 2017. "Cointegration and Causality Relationship Between Stock Market, Money Market and Foreign Exchange Market in Pakistan," Journal of Systems Science and Information, De Gruyter, vol. 5(1), pages 1-20, February.
    17. Onneetse L Sikalao-Lekobane, 2014. "Do Macroeconomic Variables Influence Domestic Stock Market Price Behaviour in Emerging Markets? A Johansen Cointegration Approach to the Botswana Stock Market," Journal of Economics and Behavioral Studies, AMH International, vol. 6(5), pages 363-372.
    18. Sellin, Peter, 1998. "Monetary Policy and the Stock Market: Theory and Empirical Evidence," Working Paper Series 72, Sveriges Riksbank (Central Bank of Sweden).
    19. Naushad Alam, 2017. "Analysis of the impact of select macroeconomic variables on the Indian Stock Market: A heteroscedastic cointegration approach," Business and Economic Horizons (BEH), Prague Development Center, vol. 13(1), pages 119-127, March.
    20. Caner Demir, 2019. "Macroeconomic Determinants of Stock Market Fluctuations: The Case of BIST-100," Economies, MDPI, vol. 7(1), pages 1-14, February.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:blg:journl:v:13:y:2018:i:2:p:69-91. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Mihaela Herciu (email available below). General contact details of provider: https://edirc.repec.org/data/feulbro.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.