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Dynamic interelationship between macroeconomic fundamentals and stock prices in Nigeria

Ditimi A*, Sunday K, Emma-Ebere, Onyedikachi

This paper investigated the dynamic interrelationship between macroeconomic fundamentals and stock prices in Nigeria using time series data spanning from 1980 to 2016. The study made use of co-integration test and the error correction mechanism. Empirical estimates revealed pointedly that there is a long run correlation between macroeconomic fundamentals and stock prices in Nigeria. Similarly, in the short run, the previous values of money supply and interest rate were found to demonstrate a significant effect on stock prices. Also, the previous value of stock market return was found to show significant influence on the current stock prices. Markedly, the results revealed that the natural logarithm of real gross domestic product is a leading indicator that stimulates stock prices in the long and short run. Based on the above findings the study recommends that the Central Bank of Nigeria should carry out prudent macroeconomic policies to derive the best from the stock market. Furthermore, the government should look into the high rate of inflation since it is one of the most significant macroeconomic indicators used to analyze the economic conditions of a country.