IIARD International Institute of Academic Research and Development

IIARD International Journal of Economics and Business Management (IJEBM )

E-ISSN 2489-0065
P-ISSN 2695-186X
VOL. 6 NO. 2 2020

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Analysis of Short and Long Run Relationship between Money Supply and Stock Market Liquidity in Nigeria.

ADEOYE, Mary. A., AGBOOLA, Olugbenga. S., ALIMI, Akindapo. A. AND OLAJIRE, Shuaib. O.

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Abstract

The study analyzed the short and long-run relationship between Money Supply and Stock Market Liquidity in Nigeria. Secondary data was adopted covering 35 years (1983 – 2018). Data were generated from the Central Bank of Nigeria Statistical Bulletin. Both Ordinary Least Squared and Co-integration methods were used to analyze the short and long-run relationship between money supply and stock market liquidity in Nigeria, while, Unit Root Test was also employed to test for the stationary status of both dependent and independent variables. Turnover Ratio served as indicator of Stock Market Liquidity while Broad Money (M2), Interest Rate (INTR), and Inflation Rate (INFR) act as proxies for Money Supply. The unit root test indicates that all the series are integrated at first difference order of one that is, 1(1) and at a 5% significance level. The regression analysis test shows an inverse relationship between the dependent variable (Turnover Ratio) and independent variables (Broad Money Supply, Deposit Interest Rate, and Inflation Rate) in the short-run. The result is significant with the value of R2 (67.57%) and adjusted R2 (62.58%). However, in the long-run, after testing for co-integration Broad Money Supply (M2) and Inflation Rate (INFR) displayed a positive relationship with coefficients 0.0009 and 0.2932 respectively.

keywords:

Turnover, Deposit Rate, Inflation Rate

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