Macroeconomic Policy And Stock Market Behaviors In Nigeria
Dr. Precious Onyinye OKEY-NWALA
Department of Finance, Faculty of Administration and Management, Rivers State University, Nkpolu-Oroworukwo, Port Harcourt
Dr Chukwuemeka Sydney Reginald OZUZU
Department of Economics, Faculty of Social Sciences, Rivers State University, Nkpolu-Oroworukwo, Port Harcourt.
Dr Marshal IWEDI
Department of Finance, Faculty of Administration and Management Rivers State University, Nkpolu-Oroworukwo, Port Harcourt.
Keywords: Monetary Policy, Stock Market Liquidity, Monetary Policy Rate, Treasury Bill Rate, Broad Money Supply, Cash Reserve Ratio, Nigeria
Abstract
This study examined the relationship between macroeconomic policy and stock market behaviour in Nigeria using annual data covering the period 1981–2024. Stock market Behavior was proxied by the turnover ratio, while macroeconomic policy indicators included the monetary policy rate (MPR), treasury bill rate (TBR), broad money supply (BMS), and cash reserve ratio (CRR). Descriptive statistics revealed high volatility in stock market liquidity, with sharp peaks in 2008 and 2013, alongside persistent policy swings in monetary indicators. The Autoregressive Distributed Lag (ARDL) technique was employed to capture both the short-run dynamics and long-run equilibrium relationships. The results showed that stock market liquidity exhibits strong persistence, as indicated by the significance of the lagged dependent variable (SML(-1)). However, the individual monetary policy variables MPR, TBR, BMS, and CRR did not show statistically significant effects on stock market liquidity in the short run. The treasury bill rate was negatively signed, suggesting a substitution effect between government securities and equities, though its impact was weak. The joint F-statistic confirmed that monetary policy variables collectively exert a significant effect on stock market liquidity, explaining about 50% of its variation. The study concludes that monetary policy in Nigeria has limited direct transmission into the stock market, with liquidity largely driven by its own past performance and structural market factors. It recommends strengthening monetary transmission mechanisms, diversifying liquidity channels beyond treasury bills, deepening the capital market, and adopting a more flexible approach to cash reserve requirements. These reforms would enhance the responsiveness of the Nigerian stock market to monetary policy changes and promote financial system stability.