Interaction Between Monetary Policies and Stock Market Development in Nigeria: An Econometrics Analysis (Published)
This study explored the interplay between monetary policies and stock market development in Nigeria, focusing on key monetary policy variables such as interest rate, money supply, exchange rate, and liquidity ratio. Stock market development was measured through market capitalization. Anchored in Monetarism theory and the Efficient Market Hypothesis, the research utilized annual time series data spanning from 1990 to 2023, sourced from the Central Bank of Nigeria (CBN) statistical bulletin and Nigeria Exchange Group (NGX). Analytical methods included descriptive statistics, the Augmented Dickey-Fuller (ADF) unit root test, and the Autoregressive Distributed Lag (ARDL) approach. Results revealed that interest rates negatively and significantly impact stock market capitalization, while broad money supply and exchange rates exhibit positive and significant effects. Conversely, liquidity ratio was found to have a negative but non-significant impact on market capitalization. The study concluded that monetary policy serves as a critical stabilization tool influencing stock market development in Nigeria. It recommended that the Central Bank of Nigeria adopt a balanced approach in setting the Monetary Policy Rate (MPR) to effectively manage market expectations.
Keywords: Exchange Rate, Interest Rate, Liquidity Ratio, Monetary Policy, Money Supply, market capitalisation, stock market
Response of Nigeria’s Stock Market to Portfolio Investment Flux: Asymmetric Evidence (Published)
The study investigates the nonlinear effects of foreign portfolio investment on the Nigerian stock market. Quarterly data was sourced from CBN statistical bulletin spanning from first quarter of 2005 to last quarter of 2022. Econometric pretest was conducted. Results from the NARDL model show significant persistence in the All Share Index (ASI), where past values strongly influence current values, aligning with momentum and short-term dynamics studies. Bond Portfolio Foreign Investment (BPFI) has a slightly positive but not robust effect on ASI, serving more as a stabilizer than a driver. Equity Portfolio Foreign Investment (EPFI) lacks an immediate impact but may affect ASI with a delay, illustrating the complex influence of foreign equity on market indices. The analysis of market capitalization (MCAP) reveals that while immediate increases in BPFI boost MCAP, lagged increases may cause reversals, and EPFI’s effects suggest initial destabilization followed by stabilization. These results reflect the transient and sometimes destabilizing effects of foreign capital flows in emerging markets. The study recommends that policymakers develop strategies to manage both short-term and long-term impacts of foreign investments. This could include controlling the pace of capital flows and creating incentives for long-term investments to reduce market volatility and enhance stability.
Keywords: Asymmetry, portfolio investment, stock market