ABSTRACT
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.
TABLE
OF CONTENTS
Title Page i
Declaration ii
Certification iii
Dedication iv
Acknowledgement v
Table of Contents vi
Abstract viii
CHAPTER ONE
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
CHAPTER TWO
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
2.1.2.1 Inflation 7
2.1.2.2 Exchange Rate 8
2.1.2.3 Money Supply 8
2.2.2.4 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
CHAPTER THREE
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
CHAPTER FOUR
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
CHAPTER FIVE
5.0 Summary of findings, conclusion and
recommendations 30
5.1 Summary of Findings 30
5.2 Conclusion 30
5.3 Recommendations 30
Reference
Appendix
CHAPTER ONE
INTRODUCTION
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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