This study aimed to assess the impact of inflation, exchange rate, and interest rate on stock market returns and volatility in Nigeria using data from 2000M1 to 2022M9. The Autoregressive Distributed Lag (ARDL) model was employed to investigate the relationship between stock market returns and the independent variables, while the Generalized Auto-Regressive Conditional Heteroskedasticity (GARCH) model was used to examine the impact on stock market volatility. Preliminary tests indicated no serial correlation but heteroskedasticity among the independent variables, which was addressed using the ARDL model with a HAC (Newey-West) covariance matrix adjustment. The results revealed significant stock return effects at a 10% level of significance with a lag of 4, suggesting a link to past performance up to four months. Additionally, the prime lending rate exhibited significance at a lag of 1, indicating the stock market's response to changes in the prime lending rate after one month. However, no significant response was found for changes in the exchange rate and inflation during the study period. The GARCH model showed that all variables, except inflation, significantly impacted stock market volatility. Notably, the maximum lending rate, prime lending rate, interbank rate, and Treasury bill rate had substantial effects on stock market volatility. The study suggests that the monetary authority should focus on interest rate mechanisms for more effective and responsive monetary policy decisions, particularly regarding the stock market.
| Published in | International Journal of Economics, Finance and Management Sciences (Volume 12, Issue 6) |
| DOI | 10.11648/j.ijefm.20241206.11 |
| Page(s) | 352-362 |
| Creative Commons |
This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited. |
| Copyright |
Copyright © The Author(s), 2024. Published by Science Publishing Group |
Monetary Policy Rate, Inflation, Volatility, Stock Returns, Exchange Rate, Treasury Bill
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APA Style
Peter, A., Olutope, O., Muhammad, R., Ogbuehi, F., Amechi, I. (2024). Impact of Interest Rate, Exchange Rate and Inflation on Stock Market Dynamics in Nigeria. International Journal of Economics, Finance and Management Sciences, 12(6), 352-362. https://doi.org/10.11648/j.ijefm.20241206.11
ACS Style
Peter, A.; Olutope, O.; Muhammad, R.; Ogbuehi, F.; Amechi, I. Impact of Interest Rate, Exchange Rate and Inflation on Stock Market Dynamics in Nigeria. Int. J. Econ. Finance Manag. Sci. 2024, 12(6), 352-362. doi: 10.11648/j.ijefm.20241206.11
AMA Style
Peter A, Olutope O, Muhammad R, Ogbuehi F, Amechi I. Impact of Interest Rate, Exchange Rate and Inflation on Stock Market Dynamics in Nigeria. Int J Econ Finance Manag Sci. 2024;12(6):352-362. doi: 10.11648/j.ijefm.20241206.11
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Download@article{10.11648/j.ijefm.20241206.11,
author = {Adekunle Peter and Olorunfemi Olutope and Rabi'a Muhammad and Francisca Ogbuehi and Igweze Amechi},
title = {Impact of Interest Rate, Exchange Rate and Inflation on Stock Market Dynamics in Nigeria
},
journal = {International Journal of Economics, Finance and Management Sciences},
volume = {12},
number = {6},
pages = {352-362},
doi = {10.11648/j.ijefm.20241206.11},
url = {https://doi.org/10.11648/j.ijefm.20241206.11},
eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ijefm.20241206.11},
abstract = {This study aimed to assess the impact of inflation, exchange rate, and interest rate on stock market returns and volatility in Nigeria using data from 2000M1 to 2022M9. The Autoregressive Distributed Lag (ARDL) model was employed to investigate the relationship between stock market returns and the independent variables, while the Generalized Auto-Regressive Conditional Heteroskedasticity (GARCH) model was used to examine the impact on stock market volatility. Preliminary tests indicated no serial correlation but heteroskedasticity among the independent variables, which was addressed using the ARDL model with a HAC (Newey-West) covariance matrix adjustment. The results revealed significant stock return effects at a 10% level of significance with a lag of 4, suggesting a link to past performance up to four months. Additionally, the prime lending rate exhibited significance at a lag of 1, indicating the stock market's response to changes in the prime lending rate after one month. However, no significant response was found for changes in the exchange rate and inflation during the study period. The GARCH model showed that all variables, except inflation, significantly impacted stock market volatility. Notably, the maximum lending rate, prime lending rate, interbank rate, and Treasury bill rate had substantial effects on stock market volatility. The study suggests that the monetary authority should focus on interest rate mechanisms for more effective and responsive monetary policy decisions, particularly regarding the stock market.
},
year = {2024}
}
TY - JOUR T1 - Impact of Interest Rate, Exchange Rate and Inflation on Stock Market Dynamics in Nigeria AU - Adekunle Peter AU - Olorunfemi Olutope AU - Rabi'a Muhammad AU - Francisca Ogbuehi AU - Igweze Amechi Y1 - 2024/11/20 PY - 2024 N1 - https://doi.org/10.11648/j.ijefm.20241206.11 DO - 10.11648/j.ijefm.20241206.11 T2 - International Journal of Economics, Finance and Management Sciences JF - International Journal of Economics, Finance and Management Sciences JO - International Journal of Economics, Finance and Management Sciences SP - 352 EP - 362 PB - Science Publishing Group SN - 2326-9561 UR - https://doi.org/10.11648/j.ijefm.20241206.11 AB - This study aimed to assess the impact of inflation, exchange rate, and interest rate on stock market returns and volatility in Nigeria using data from 2000M1 to 2022M9. The Autoregressive Distributed Lag (ARDL) model was employed to investigate the relationship between stock market returns and the independent variables, while the Generalized Auto-Regressive Conditional Heteroskedasticity (GARCH) model was used to examine the impact on stock market volatility. Preliminary tests indicated no serial correlation but heteroskedasticity among the independent variables, which was addressed using the ARDL model with a HAC (Newey-West) covariance matrix adjustment. The results revealed significant stock return effects at a 10% level of significance with a lag of 4, suggesting a link to past performance up to four months. Additionally, the prime lending rate exhibited significance at a lag of 1, indicating the stock market's response to changes in the prime lending rate after one month. However, no significant response was found for changes in the exchange rate and inflation during the study period. The GARCH model showed that all variables, except inflation, significantly impacted stock market volatility. Notably, the maximum lending rate, prime lending rate, interbank rate, and Treasury bill rate had substantial effects on stock market volatility. The study suggests that the monetary authority should focus on interest rate mechanisms for more effective and responsive monetary policy decisions, particularly regarding the stock market. VL - 12 IS - 6 ER -
Statistics Department, Central Bank of Nigeria, Abuja, Nigeria
