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Stock Market Price Behavior and Macroeconomic Variables in Nigeria: An Error Correction Analysis

Author

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  • Onyemachi Maxwell Ogbulu
  • Zeph Chibueze Abaenewe
  • Patrick Nwaeze Nnamocha

Abstract

This study examines stock market price behavior and selected key macroeconomic variables in Nigeria within the period (1986-2011.) The co-integration and error correction technique (ECM), impulse response function(IRF) as well as variance decomposition(VDC) test techniques were employed to investigate the relationship between stock market prices and selected key macroeconomic variables. The study reveals that there is co-integration relationship between share prices and the selected macro economic variables, indicating long run relationship between stock prices and the specified macroeconomic variables. The findings of the study also show insignificant negative relationship between the NSE All share index (ASI) and index of industrial production (IDP) contrary to a priori expectation. The negative relationship can be attributed to high cost of energy generation and distribution in Nigeria during the period under review, a situation which has affected the industrial sector adversely. The results of the variance decomposition of ASI to shocks emanating from FXR, IDP and MRR show that ASI own shocks remain the dominant source of total variations in the forecast error of the variables. However, we recommend that adequate attention be paid to solving energy generation problem in Nigeria which invariably will reduce cost of industrial production and enhance profit margin of industries as well as support further investment in the sector.

Suggested Citation

  • Onyemachi Maxwell Ogbulu & Zeph Chibueze Abaenewe & Patrick Nwaeze Nnamocha, 2014. "Stock Market Price Behavior and Macroeconomic Variables in Nigeria: An Error Correction Analysis," International Journal of Financial Economics, Research Academy of Social Sciences, vol. 2(2), pages 58-72.
    • Handle: RePEc:rss:jnljfe:v2i2p3
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    References listed on IDEAS

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    1. Engle, Robert & Granger, Clive, 2015. "Co-integration and error correction: Representation, estimation, and testing," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 39(3), pages 106-135.
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    Cited by:

    1. Aliyu, Shehu Usman Rano & Aminu, Abubakar Wambai, 2018. "Economic regimes and stock market performance in Nigeria: Evidence from regime switching model," MPRA Paper 91430, University Library of Munich, Germany, revised 03 Oct 2018.

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