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
