Monetary Policy and Stock Market Performance in Nigeria

Abstract

This study has empirically examined the effect of monetary policy on stock market performance in Nigeria. The study was evaluated empirically over a period of thirty-three years, that is, from 1990 to 2022. Monetary policy rate, broad money supply, liquidity ratio, cash reserve ratio and exchange rate were used as the proxies of monetary policy (independent variable) while stock market capitalization was used as the indicator of stock market performance (dependent variable). The study employed yearly time series data and these data were mainly extracted from Central Bank of Nigeria (CBN), World Development Indicator (WDI) of the World Bank and Nigerian Exchange Group (NXG) fact book. Augmented Dickey Fuller (ADF) unit root test, Bounds Cointegration test and Autoregressive Distributed Lag (ARDL) approach were the techniques of the data analysis adopted. The result of the study showed that monetary policy rate and liquidity ratio have negative but significant effect on stock market capitalization in Nigeria, broad money supply and exchange rate have positive and significant effect on stock market capitalization in Nigeria while cash reserve ratio has a negative and non-significant effect on stock market capitalization in Nigeria. Based on the findings, the study therefore concluded that monetary policy plays a vital role in improving stock market performance in Nigeria. The study recommended that Central Bank of Nigeria should reduce the current double digit monetary policy rate to a single digit to attract investments in the stock market.

References