IIARD International Institute of Academic Research and Development

IIARD INTERNATIONAL JOURNAL OF BANKING AND FINANCE RESEARCH (IJBFR )

E-ISSN 2695-1886
P-ISSN 2672-4979
VOL. 3 NO. 1 2017

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Inflation and Stock Prices: The Nexus

Kurotamunobaraomi, Tamunosiki and Ebiware, Adekitanke Ejiodamen

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Abstract

This study analytically considered the relationship between inflation and stock prices of firms quoted in Nigeria Stock Market by using data that spanned 1986 to 2014 curled from the Central Bank of Nigeria and National Bureau of Statistics. Ordinary Least Square, Unit Root (Stationarity) Test, Johansen Cointegration and Granger Causality Test were employed to analyse the data to reveal that Money Supply and Exchange Rate portray statistically significant relationships with Stock prices. It also revealed that all but Interest Rate shows positive relationship with stock prices and no long run relationship were observed between any of the endogenous variables and the exogenous variable. Furthermore, uni - directional causal relationships from All Share Price Index to Interest Rate and Exchange Rate to All Shares Price Index. Consequently, it was recommended that Nigeria’s resource or revenue portfolio should be broadened to reduce the market shocks or reaction to the performance of any of such fundamentals, interest rate should be reduced to engender investment in the stock market to propel investments which will ultimately reduce inflation as is propelled by cost, the market should be deepened to accommodate additional investments to it consequent on rising exchange rate and increased money supply, efforts should be made (as a matter of policy) to channel a minimum proportion of such capital gains to reinvestment

keywords:

Inflation rate, Money Supply, Stock Prices, All Price Index.

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