MACRO-LIQUIDITY AND STOCK MARKET RETURNS: A VECTOR ERROR CORRECTION MODEL FROM NIGERIA
Dr. ADIBE, Francis Chikwendu
Department Of Banking and Finance, Faculty of Management Sciences, Rivers State University, Nigeria
Dr. Ezebunwo Nyeche
Department Of Economics, Faculty of Social Sciences, Rivers State University, Nigeria
ABSTRACT
This study examined the effect of macro-liquidity on Nigeria stock market return. Time series data were sourced from Central Bank of Nigeria Statistical Bulletin from 1987-2020. Nigeria stock market return was modeled as the function of narrow money supply (MI), broad money supply (M2), large money supply (M3) and private sector demand deposits. The study employed multiple regression models to estimate the relationship that exists between macro-liquidity and stock market return. Ordinary Least Square (OLS), Augmented Dickey Fuller Test, Johansen Co-integration test, normalized co-integrating equations, parsimonious vector error correction model and pair-wise causality tests were used to conduct the investigations and analysis. The adjusted R2 from the model proved that macro-liquidity explained 63.2 percent changes on stock market return. The estimated model results found that private sector demand deposit and M1 have negative but no significant effect on stock market return while M2 and M3 have positive and no significant effect on stock market return. From the finding the study concludes that macro-liquidity does not determine stock market return in Nigeria. The study recommends that the regulatory authorities and Nigerian government can stabilize stock market return by adjusting the monetary policy when the impact of money supply on the stock market is negative and the need for expansionary monetary policy as this can spur the economy, the cash flow in the hands of public increase and this led the demand of stocks and other assets also increase.
Keywords: Macro-Liquidity, Stock Market Returns, Vector Error Correction Model, Nigeria
Adibe, F.C & Nyeche, E. (2022). Macro-Liquidity and Stock Market Returns: A Vector Error Correction Model from Nigeria. International Journal of Advanced Academic Research, 8(2), 58-71. Available online at: https://www.ijaar.org/articles/v8n2/sms/ijaar-v8n2-Feb22-p8204.pdf
