Causal relationship between stock market returns and macroeconomic variables in Nigeria

In Nigeria, the fundamental problems associated with the stock exchange market are associated with changes in macroeconomic variables as a result of macroeconomic shocks. Accordingly, this thesis provides an empirical investigation of the causal relationship between stock market returns and macroeco...

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Main Authors:	Ali, Umar Ahmad, Abdullah, Adam, Sulong, Zunaidah, Ahmad, Tijjani Abdullahi
Format:	Article
Language:	English
Published:	IOSR 2015
Subjects:	HB Economic Theory
Online Access:	http://irep.iium.edu.my/44681/ http://irep.iium.edu.my/44681/ http://irep.iium.edu.my/44681/1/Umar%2C_15-05%2C_IOSR-JHSS.pdf

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spelling	iium-446812015-09-14T01:36:28Z http://irep.iium.edu.my/44681/ Causal relationship between stock market returns and macroeconomic variables in Nigeria Ali, Umar Ahmad Abdullah, Adam Sulong, Zunaidah Ahmad, Tijjani Abdullahi HB Economic Theory In Nigeria, the fundamental problems associated with the stock exchange market are associated with changes in macroeconomic variables as a result of macroeconomic shocks. Accordingly, this thesis provides an empirical investigation of the causal relationship between stock market returns and macroeconomic variables in order to enhance the ability of economic agents in the analysis of stock market performance in Nigeria using Autoregressive Distributive Lag (ARDL) and Vector Autoregressive Model (VAR). Annual time series data of six variables namely; broad money supply, nominal effective exchange rate, short term treasury bills rate, foreign direct investment, gross domestic per capita income, and gross domestic saving from 1984-2013 were employed to analysed the causal relationship between stock market returns and macroeconomic variables. The results from the Augmented Dickey-Fuller and Phillips-Perron tests of stationarity indicated that all the variables were non-stationary at level I (o) but stationary at first difference I (1). The Bound test procedure also revealed that the stock market returns and the macroeconomic variables were cointegrated and, thus, a long-run equilibrium relationship exists between them. Likewise, the Granger causality tests showed that some of the macroeconomic variables were having bidirectional causality with the stock market returns; while others have unidirectional causality. Furthermore, the impulse response function indicated that the impact of shocks in broad money supply, nominal effective exchange rate, gross domestic per capita income and short-term treasury bill rate on the stock market returns in this study was consistent with other stock market empirical results. The variance decomposition test indicated that the stock market returns can be explained by gross domestic saving and nominal effective exchange rate. As a result, Policy makers, financial institutions and private investors need to take the macroeconomic indicators into consideration when formulating financial and economic policies, diversification strategies, portfolio allocation and re-balancing. IOSR 2015-05 Article PeerReviewed application/pdf en http://irep.iium.edu.my/44681/1/Umar%2C_15-05%2C_IOSR-JHSS.pdf Ali, Umar Ahmad and Abdullah, Adam and Sulong, Zunaidah and Ahmad, Tijjani Abdullahi (2015) Causal relationship between stock market returns and macroeconomic variables in Nigeria. Journal Of Humanities And Social Science, 20 (5(v.2)). pp. 74-96. ISSN 2279-0845 http://iosrjournals.org/iosr-jhss/papers/Vol20-issue5/Version-2/L020527496.pdf
repository_type	Digital Repository
institution_category	Local University
institution	International Islamic University Malaysia
building	IIUM Repository
collection	Online Access
language	English
topic	HB Economic Theory
spellingShingle	HB Economic Theory Ali, Umar Ahmad Abdullah, Adam Sulong, Zunaidah Ahmad, Tijjani Abdullahi Causal relationship between stock market returns and macroeconomic variables in Nigeria
description	In Nigeria, the fundamental problems associated with the stock exchange market are associated with changes in macroeconomic variables as a result of macroeconomic shocks. Accordingly, this thesis provides an empirical investigation of the causal relationship between stock market returns and macroeconomic variables in order to enhance the ability of economic agents in the analysis of stock market performance in Nigeria using Autoregressive Distributive Lag (ARDL) and Vector Autoregressive Model (VAR). Annual time series data of six variables namely; broad money supply, nominal effective exchange rate, short term treasury bills rate, foreign direct investment, gross domestic per capita income, and gross domestic saving from 1984-2013 were employed to analysed the causal relationship between stock market returns and macroeconomic variables. The results from the Augmented Dickey-Fuller and Phillips-Perron tests of stationarity indicated that all the variables were non-stationary at level I (o) but stationary at first difference I (1). The Bound test procedure also revealed that the stock market returns and the macroeconomic variables were cointegrated and, thus, a long-run equilibrium relationship exists between them. Likewise, the Granger causality tests showed that some of the macroeconomic variables were having bidirectional causality with the stock market returns; while others have unidirectional causality. Furthermore, the impulse response function indicated that the impact of shocks in broad money supply, nominal effective exchange rate, gross domestic per capita income and short-term treasury bill rate on the stock market returns in this study was consistent with other stock market empirical results. The variance decomposition test indicated that the stock market returns can be explained by gross domestic saving and nominal effective exchange rate. As a result, Policy makers, financial institutions and private investors need to take the macroeconomic indicators into consideration when formulating financial and economic policies, diversification strategies, portfolio allocation and re-balancing.
format	Article
author	Ali, Umar Ahmad Abdullah, Adam Sulong, Zunaidah Ahmad, Tijjani Abdullahi
author_facet	Ali, Umar Ahmad Abdullah, Adam Sulong, Zunaidah Ahmad, Tijjani Abdullahi
author_sort	Ali, Umar Ahmad
title	Causal relationship between stock market returns and macroeconomic variables in Nigeria
title_short	Causal relationship between stock market returns and macroeconomic variables in Nigeria
title_full	Causal relationship between stock market returns and macroeconomic variables in Nigeria
title_fullStr	Causal relationship between stock market returns and macroeconomic variables in Nigeria
title_full_unstemmed	Causal relationship between stock market returns and macroeconomic variables in Nigeria
title_sort	causal relationship between stock market returns and macroeconomic variables in nigeria
publisher	IOSR
publishDate	2015
url	http://irep.iium.edu.my/44681/ http://irep.iium.edu.my/44681/ http://irep.iium.edu.my/44681/1/Umar%2C_15-05%2C_IOSR-JHSS.pdf
first_indexed	2023-09-18T21:03:31Z
last_indexed	2023-09-18T21:03:31Z
_version_	1777410780517367808

Causal relationship between stock market returns and macroeconomic variables in Nigeria

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