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Stock Market Return Volatility and Macroeconomic Variables in Nigeria

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  • Emenike Kalu O.
  • Odili Okwuchukwu

Abstract

This paper examines the impact of macroeconomic variables on stock market return volatility in Nigeria using GARCH-X model. Five macroeconomic variables: broad money supply, consumer price index, credit to the private sector, US dollar/ Naira exchange rate, and the net foreign assets, were included in the conditional variance model of the Nigerian Stock Exchange (NSE) All-share Index from January 1996 to March 2013. Results of the GARCH-X model suggest that the NSE return volatility is positively influenced by changes US dollar/ Naira exchange rates and credit to private sector but negatively influenced by changes broad money supply and inflation. On the other hand, changes in net foreign assets shows negative but not significant influence on changes in stock market return volatility. The key implication is for investors to adjust their portfolio to changes in these macroeconomic variables.

Suggested Citation

  • Emenike Kalu O. & Odili Okwuchukwu, 2014. "Stock Market Return Volatility and Macroeconomic Variables in Nigeria," International Journal of Empirical Finance, Research Academy of Social Sciences, vol. 2(2), pages 75-82.
    • Handle: RePEc:rss:jnljef:v2i2p3
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    References listed on IDEAS

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    1. Gabriel Perez‐Quiros & Allan Timmermann, 2000. "Firm Size and Cyclical Variations in Stock Returns," Journal of Finance, American Finance Association, vol. 55(3), pages 1229-1262, June.
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    3. repec:bla:jfinan:v:44:y:1989:i:5:p:1115-53 is not listed on IDEAS
    4. Yaya, OlaOluwa S & Shittu, Olanrewaju I, 2010. "On the Impact of Inflation and Exchange Rate on Conditional Stock Market Volatility: A Re-Assessment," MPRA Paper 88759, University Library of Munich, Germany.
    5. Morelli, David, 2002. "The relationship between conditional stock market volatility and conditional macroeconomic volatility: Empirical evidence based on UK data," International Review of Financial Analysis, Elsevier, vol. 11(1), pages 101-110.
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    Cited by:

    1. Anthony E. Ageme, 2020. "“Impact of Selected Macroeconomic Variables on Stock Market Development and Banking System Liquidity in Nigeria," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 4(7), pages 107-112, July.
    2. Joshua Odutola Omokehinde & Matthew Adeolu Abata & Stephen Oseko Migiro, 2017. "Foreign Exchange News Announcements and the Volatility of Stock Returns in Nigeria," SPOUDAI Journal of Economics and Business, SPOUDAI Journal of Economics and Business, University of Piraeus, vol. 67(3), pages 3-17, july-Sept.
    3. Izunobi Anthony Okechukwu & Nzotta Samuel Mbadike & Ugwuanyim Geoffrey & Benedict Anayochukwu Ozurumba, 2019. "Effects of Exchange Rate, Interest Rate, and Inflation on Stock Market Returns Volatility in Nigeria," International Journal of Management Science and Business Administration, Inovatus Services Ltd., vol. 5(6), pages 38-47, September.
    4. Muhammad Mansoor Baig & Waheed Aslam & Qaiser Malik & Muhammad Bilal, 2015. "Volatility of Stock Markets (an Analysis of South Asian and G8 Countries)," Acta Universitatis Danubius. OEconomica, Danubius University of Galati, issue 11(6), pages 58-70, December.
    5. Tosin B. Fateye & Oluwaseun D. Ajay & Cyril A. Ajay, 2021. "Modelling of Daily Price Volatility of South Africa Property Stock Market Using GARCH Analysis," AfRES 2021-013, African Real Estate Society (AfRES).

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