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Product Category: Projects

Product Code: 00007675

No of Pages: 41

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The study empirically investigated the effect of macroeconomic factors on stock market performance using time series data from 1995 to 2017. The macroeconomic factors considered were real gross domestic product, money supply, exchange rate and interest rate, while stock market performance was measured by all share index. Multiple regression analysis was carried out on the data collected. The results showed that real gross domestic product and money supply were positive and significant in affecting stock market performance, while interest rate and exchange rate were insignificant. It was recommended among other things Government should ensure that the economy of Nigeria is well diversified by encouraging investments in other key economic sectors so as to boost stock market performance.


Title Page                                                                                                           i

Declaration                                                                                                         ii

Certification                                                                                                       iii

Dedication                                                                                                          iv

Acknowledgement                                                                                              v

Table of Contents                                                                                               vi

Abstract                                                                                                              viii



1.0 Introduction                                                                                                  1

1.1  Background to the Study                                                                        1

1.2  Statement of the Problem                                                                       2

1.3  Objectives of the Study                                                                          4

1.4  Research Questions                                                                                4

1.5  Research Hypotheses                                                                             4

1.6 Significance of the Study                                                                             5

1.7 Scope of the Study                                                                                       5


2.0 Review of Related Literature                                                                       6

2.1 Conceptual Literature                                                                                   6

2.1.1 Stock Market                                                                                             6

2.1.2 Micro economic Factors                                                                            7 Inflation                                                                                                  7 Exchange Rate                                                                                        8 Money Supply                                                                                        8 Real Gross Domestic Product                                                                9

2.1.3 Micro economics Determinants of Stock Market performance           9

2.2 Theoretical Framework                                                                                11

2.2.1 The Purchasing Power Parity (PPP)                                                         14

2.3 Empirical Literature                                                                                     15



3.0 Research Methodology                                                                                21

3.1 Research Design                                                                                           21

3.2 Model Specification                                                                                     21

3.2.1 Description of Research Variables                                                            22

3.3 Technique of data analysis                                                                           23

3.3.1 Statistical Criteria                                                                                      23

3.4 Sources of Data Collection                                                                          23

3.4.1 Secondary Data                                                                                         24


4.0 Data Presentation, Data Analysis and Discussion of Findings                 25

4.1 Data Presentation                                                                                         25

4.1.1 Descriptive Analysis                                                                                 26

4.2 Analysis and Discussion of findings                                                            27

4.2.1 Regression Analysis                                                                                  27

4.2.2 Testing hypotheses                                                                                    28



5.0 Summary of findings, conclusion and recommendations                               30

5.1 Summary of Findings                                                                                   30

5.2 Conclusion                                                                                                   30

5.3 Recommendations                                                                                        30








1.1 Background to the study

The economic development of all nations requires availability of long-term capital. The stock market is one of the financial institutions that serve as a veritable tool in the mobilization and allocation of savings among competing uses which are critical to the growth and efficiency of the economy (Alile, 2011). Through mobilization of resources the stock market promotes economic growth by providing avenue to pool large and long term capital through issuing of shares and stocks and other equities for industries in dire need of finance to expand their business (Sohail&Hussain, 2010).

The performance of stock market can be measured using: Market Capitalization which measures stock market size; Stock Market Liquidity which measures the ability of investors to buy and sell securities easily. Others are All Share Index (ASI) which reflects the performance and condition of the stock market and Turnover Ratio which is the index of comparison for market liquidity rating and the level of transaction costs (Daferighe& Charlie, 2012).

The arguments flowing from the macroeconomic theorists has often been that stock prices are determined by some fundamental macroeconomic factors like the gross domestic product, interest rate, exchange rate, inflation rate and money supply. Investors generally believe that macroeconomic variables have great influence on stock prices (Aldin, Dehnavi&Entezari, 2012).The crux of the argument is that an accurate prediction of stock price movements is a very challenging and important issue which the investors extensively regard in their investment decisions (Wang, Wang, Zhang &Guo, 2011).

Since, the stock market houses a large chunk of the nation’s wealth and has continued to be the major discourse of various studies since the advent of the global financial crisis, it becomes necessary to investigate the feasibility of enhancing the performance of stock markets of emerging economies through the use of micro economic factors.

The macroeconomic hypotheses of stock market price movement advocates that the interactions among macroeconomic variables and the stock market prices for companies quoted on stock markets have consequential effects on both market capitalization and company’s valuations. This might make investors skeptical about the future performance of companies. As a result, the stock prices may drop in the short run as well as the long run. Therefore, Investors in the Nigerian Stock Exchange need information on the influence of macroeconomic variables on the stock market prices for companies quoted on the Stock Exchanges where they participate. Thus, for investors in Nigeria, the effect of selected macroeconomic variables/factors such as Gross Domestic Product, money supply, interest rate, inflation rate and exchange rate, on stock prices in Nigerian becomes needful to investigate. On this background we carry out an investigation on the effect of microeconomic factor on economic stock market performance in Nigeria.

1.2 Statement of the Problem

The performance of the stock market in any country is a strong indicator of general economic performance and is an integral part of the economy of any country. With the introduction of free and open economic policies and advanced technologies, investors are finding easy access to stock markets around the world. The fact that stock market indices have become an indication of the health of the economy of a country indicates the importance of stock markets. This increasing importance of the stock market has motivated the formulation of many theories to describe the working of the stock markets (Gupta, Chevalier and Sayekt, 2014).

Garcia & Liu (2009), established that macroeconomic volatility does not affect stock market performance, while Maku and Atanda (2010) revealed that the stock market performance in Nigeria is mainly affected by macro-economic forces in the long-run in Nigeria. Ting, Gupta and Chevalier, (2012), established that Kuala Lumpur composite index is consistently influenced by interest rate, money supply and consumer price index in the short run and long-run in Malaysia. Sohail and Hussain (2013), established that there is a negative relationship between real interest rate and stock market performance in Nigeria. Jahur, Mohammed, and Hassana, (2014), established macro-economic variables such as Consumer Price Index, Interest Rate have significant impact on the stock market performance in Bangladesh.

A study conducted by Aduda, Masila, and Onsongo (2012) reported that there is no relationship between stock market development and macro-economic stability - inflation and private capital flows. Mongeri (2011), established that foreign exchange rates have a negative significant impact on stock market performance. Also, Songole (2012), established that market interest rate, consumer price index and exchange rate have a negative relationship with stock return. Samuel & Sampson (2013), showed that there is a negative relationship between inflation and stock market performance in Nigeria. Thus, it is notable that there is lack of a consensus of the effect of macro-economic factors, on stock market performance. Therefore we carry out an investigation on the effect of Marco economic factors on stock market performance in Nigeria.

   1.3   Objectives of the Study

The main objective of the study is to empirically investigate the effect of macroeconomic factor on stock market performance in Nigeria. The specific objectives will include;

(i)             To empirically investigate the effect of gross domestic product on stock market performance in Nigeria.

(ii)           To investigate the effect of interest rate on stock market performance in Nigeria.

(iii)         To evaluate the effect of market capitalization on stock market performance in Nigeria.

(iv)          To evaluate the effect of exchange rate on stock market performance in Nigeria.

1.4 Research Question

From the objectives, the study is meant to unravel the following research questions:

1.     What is the effect of gross domestic product on stock market performance in Nigeria?

2.     What is effect of interest rate on stock market performance in Nigeria?

3.     What is the effect of market capitalization on stock market performance in Nigeria?

4.     What is the effect of exchange rate on stock market performance in Nigeria?

1.5 Research Hypotheses

In line with the objective of the study, the following hypotheses were been formulated in null form.

Ho1: Gross domestic product have no significant effect on stock market performance in Nigeria.

Ho2: Interest rate have no significant effect on stock market performance in Nigeria.

Ho3: Market capitalization have no significant effect on stock market performance in Nigeria.

Ho4: Exchange rate have no significant impact on stock market performance in Nigeria.


1.6 Significance of the Study

This study will be of paramount importance to the following group:

1.     Policy makers especially in formulating policy that will encourage the stimulation of Nigeria stock market.

2.     To the Government, is keen on exploring ways by enacting policies that are in consonance with the establishment and promotion of improved stock market performance in Nigeria. Hence, the government stands the better position of making sure that the growth of the economy is taken into consideration to better the standard of living of its citizenry.

3.     To Academic Purpose, an advancement of knowledge is achieved when series of research are being carried out in the academic environment. Thereby the scope and horizon of the readers or researchers are widened in order to achieve academic excellence through series of research, development of the intellectual faculty and planning. This also led to the gathering and update in the volume of literature for various field of study that are applicable majorly to finance students.

1.7 Scope of the study

The study of the effect of macroeconomic factor on stock market performance in Nigeria will be conducted for the period of 1986 to 2017.

1.8  Limitations of the Study

The limitations of this study include some of unavoidable constraints and problems encountered in the process. They are as follows:

1.     Finance: The problem of finance is not left out in the course of research to this study. This type of study required adequate money and time to enable the researcher visit the necessary places for collection of data. Insufficient fund will hinder an in-depth study of this research since it is finance from the pocket money of the researcher. Although the researcher, as a student, is not financially dependent, he is poised to making the best use of the available monetary resources to get the job properly done.

2.     Non-availability of records: This is one of the most important limiting factors in the course of the study. This includes the problems of easily getting the appropriate data due to bureaucracy which hinders the information flow in the country. But the researcher will make good use the records available for her.

3.     Time: Since this study is one of the many courses offered by the researcher, the researcher will be constrained by time to carry out an indent research on the study. But the researcher is poised to making the best use of the available time to get the job properly done.


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