Macroeconomic Factors and Stock Market Performance Based on New Evidence: A Case Study from Nigeria

Abstract

The nexus between macroeconomic conditions and stock market performance is multifaceted in nature. One of the considerations of investors before investing in the stock market is to assess the macro-economic environment of the country. There have been divergent views on the relationship between stock market and macro-economic variables in literature and this debate is inconclusive. This study included the variable that measures the overall macroeconomic environment i.e. Country Policy and Institutional Assessment (CPIA), which is imperative and novel because it has been ignored in the past. This study provided empirical evidence on the relationship between selected macro-economic factors and stock market performance in Nigeria from 2003 to 2022. The foundational theory for this study is the Arbitrage Pricing Theory (APT). The study employed the Autoregressive Distributed Lag (ARDL) cointegration approach to examine relationship between macroeconomic variables and stock market performance in Nigeria. The ARDL results established a short-run linear relationship and non-existence of long run relationship among the variables. The results suggested that stock performance in Nigeria was influenced positively by GDP growth although it was an insignificant influence. However, the study that the found overall macroeconomic environment, inflation, and interest rate spread, having a negative yet insignificant influence over the stock market performance. These findings are important for policy makers because the overall macro-economic environment considers the effectiveness of the policies and actions taken as well as the institutional arrangements a country's government and central bank to regulate and control the economy. This study recommends the need for proper institutional arrangement and policy framework to manage and maintain stable macro-economic environment to promote stock market performance.