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Home  >  Volume 28. No.2 (Nov. 2014)

31. An Econometric Analysis of the Impact of Some Macroeconomic Variables on Stock Market Index by D.A. Agunbiade, B.T. Efuwape and A.I. Taiwo - Volume28, No. 2, (November, 2014), pp 207 – 216
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Investment in the stock market is long term in nature. Any development that could affect the stability of the economy usually has serious impact on the stock market performance. This research work examines the impactof some macroeconomic variables (Inflation, Interest and Exchange rates as well as Real Gross Domestic Product) on Nigerian stock market index. The methodologies used are cointegration and vector error correction model using annual datacollected from Nigeria stock exchange fact book and Central Bank of Nigeria statistical bulletin (2012). From the results obtained the Augmented Dickey-Fuller (ADF) test reveals that all other macroeconomic indicators were stationary at the first order of difference except for SMI and RGDP that were stationary at the secondorder of difference, I(2).The Johansen co-integration test shows there are at least three co-integrated variables out of the five economic series considered in this study at 5% level of significance. A dynamic relationship among the five macroeconomicvariables considered was established using the Vector Error Correction models. Meanwhile, four of these indicators jointly influenced the SMI. In conclusion, Nigerian Government should implementpolicies that will reduce inflation rate and poverty level through infrastructural development and improved standard of living. Also, interest rates should be made moderate in order to encourage investment and transactions in stocks in the Nigerian Capital Market. The negative exchange rate shows that the Nigeria economy is readily open for international trade. And finally, the RGDP indicates positive impact with the stock market index. Keywords:Market Interaction, VEC, Cointegration and Macroeconomic variables.