MACROECONOMIC RISK AND STOCK RETURNS OF DEPOSIT MONEY BANKS IN NIGERIA

ABSTRACT

This study, which covers the twenty-three-year period from 1996 to 2022, empirically examines the impact of macroeconomic risk on the stock returns of Nigerian deposit money banks. The investigations used a dynamic framework of Autoregressive Distributed Lag (ARDL) of Error Correction Model (ECM) approaches, which included unit root, co-integration, and preliminary tests for descriptive statistics. It was discovered that all of the employed variables were integrated of order one I(1) and that there was a long-term correlation between the explanatory and dependent variables. Results indicate that, specifically, the APT model's coefficient of macroeconomic risk variables significantly affects the stock returns of Nigeria DMBs over the sample period in question. Thus, by demonstrating that expectations in macroeconomic risk factors may function well in driving the behaviour of stock returns in the banking sector, the study supported the validity of APT with regard to the Nigerian situation. Therefore, the study comes to the conclusion that, within the selected sample period, APT is a good fit in the Nigerian banking sector, having strong short-term application and weak long-term applicability.