The relationship between macroeconomic variables and stock market returns in the Nigerian exchange limited

Summary

This study empirically investigate the relationship between macroeconomic variables and stock market returns in the Nigerian exchange limited. Annual time series data for the period 1985 to 2021 and the fully modified ordinary least square (FMOLS) technique was used in the analysis of data. The summary of the findings are stated below: (i) That on the basis of Granger Causality test, it was observed that a bidirectional causality actually exist between stock market returns (proxied by MCAP), money supply and exchange rate; while a unidirectional causality flowing from MCAP to INTR, GDP toMCAP respectively (ii) That money supply (MS) has a weak inverse relationship with stock market returns in the Nigerian exchange limited, it failed the 5 percent significance level, and it suggests that this variable does not play any significant role in the determination of stock market returns in Nigeria. (iii) That interest rate (INTR) is negative and passed the 5 percent level of significance, suggesting that it plays important role in the determination of stock market returns in Nigeria. 57 (iv) That exchange rate (EXCHR) is not a significant determinant of stock market returns in Nigeria, as it has weak negative relationship with MCAP. (v) That inflation rate (INFLR) has a strong positive relationship with stock market returns in Nigeria. (vi) That foreign direct investment (FDI) also failed the 5 percent significance level, suggesting that the variable does not play any significant role in stock market returns in Nigeria within the investigating period.