Stability in Stock Market Prices and Monetary Policy in Nigeria; What Does the Empirics Say?

Abstract

We observed that the implications of monetary policy for stability in the stock market had been dominated by obscurity, dissimilarities and inconclusiveness in extant literature. It is not even entirely clear how variations in monetary policy regimes predict stability in Nigeria stock markets. In this study, an attempt is made to empirically examine the variations in stock returns as induced by indices of monetary policy in Nigeria for the period 1986 through 2017. Using the two-step Engle and Granger error correction modelling technique, we found the monetary policy to be positively related to stock returns. This result could be due to extensive dominance of deposit money banks (DMBs) in the market capitalisation processes and formation. There is no gainsaying to aver that DMBs are also the primary beneficiaries of the interest income from investment in the risk-free bank. Policy implications were discussed.

Keywords

• stock market returns
• monetary policy
• ecm
• nigeria