Impact of Monetary Aggregates on Stock Market Returns in Nigeria

Abstract

This study examined the impact of monetary aggregates on stock market returns in Nigeria for the period of 1993-2023 (31years). Data for the study was obtained from CBN Statistical Bulletin and CBN Annual Report (1993-2023). The Monetary aggregates was proxied with Reserve Requirement (RR), Cash Reserve Ratio (CRR), Discount Rate (DR), Money Supply (MS), Interest Rate (INTR) and Exchange Rate (EXCHR) (Independent Variables) examined on how it influence the stock market returns [proxied with All Share Index (ASI)] (Dependent Variable). Data was analyzed using the descriptive statistics, correlation matrix and several diagonistics tests, followed by the unit root test, ARDL Bound Co-integration test, and ARDL Co-integrating and Long form were utilised via Econometric Views version 9.0. The findings revealed that RR has a p-value of 0.7261 on the short run and a p-value of 0.7288 on the long run, respectively. This suggests that both in the short and long terms, RR has no significant impact on ASI in Nigeria. CRR has a pvalue of 0.7261 on the short run and a p-value of 0.7288 on the long run, respectively. This suggests that both in the short and long terms, CRR has no significant impact on ASI in Nigeria. DR has a p-value of 0.2773 on the short run and a p-value of 0.5479 on the long run, respectively. This suggests that both in the short and long terms, DR has no significant impact on ASI in Nigeria. MS has a p-value of 0.8558 on the short run and a p-value of 0.8576 on the long run, respectively. This suggests that both in the short and long terms, MS has no significant impact on ASI in Nigeria. An increase in the money supply is associated with a positive but insignificant effect on the ASI. INTR has a p-value of 0.2299 on the short run and a p-value of 0.4686 on the long run, respectively. This suggests that both in the short and long terms, INTR has no significant impact on ASI in Nigeria. EXCHR has a p-value of 0.8120 on the short run and a p-value of 0.7972 on the long run, respectively. This suggests that both in the short and long terms, EXCHR has no significant impact on ASI in Nigeria. The exchange rate exhibits a positive but insignificant impact on the ASI in both the short and long run. Hence, the research came to the conclusion that monetary aggregates have no significant impacts on stock market return in Nigeria. The study recommended that investors should adopt long-term strategies that account for the inherent volatility in the Nigerian market, rather than reacting to short-term fluctuations in reserve requirements. Stakeholders in the Nigerian financial market should focus on educating investors about the broader economic indicators and their potential impacts on the stock market. This could help mitigate the negative perceptions associated with cash reserve ratios. This study provides empirical evidence on the relationship between monetary aggregates and stock market return in Nigeria.