INFLATION AND STOCK MARKET RETURNS IN NIGERIA: AN EMPIRICAL ANALYSIS

INFLATION AND STOCK MARKET RETURNS IN NIGERIA: AN EMPIRICAL ANALYSIS

Author by Dr. Esther Lawal

Journal/Publisher: Journal Of Research In Humanities And Social Science

Volume/Edition: 4

Language: English

Pages: 50 - 56

Abstract

This study examines the long-run relationships and dynamic interactions between stock returns, inflation and exchange rate in Nigeria using monthly data of the All Share Price Index from the Nigeria Stock Exchange, Nigeria Consumers Price Index and Exchange Rate from 1995 to 2014. The analytical technique of vector error correction model (VECM) for short run relationship and the co-integration test to test for the long run relationship was used. From the results, it is evident that there is no existence of a long run relationship between stock returns, inflation and exchange rate. The short run dynamic model also reveals there is a short run relationship in stock returns which is attributed to the instability of prices of stocks noticed over time. It is recommended that the Securities and Exchange Commission (SEC) and the Nigerian Stock Exchange (NSE) should strive to improve on market capitalization of stock market by attracting listing and increased trading activities. Keywords:Inflation, Stock Market Returns, Vector Error Correction Model (Vecm)

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