EFFECTS OF MACROECONOMIC FACTORS ON STOCK RETURNS IN NIGERIA

Abstract

Purpose: This study set out to examine the effects of macroeconomic factors on stock returns for top twenty-five most capitalized quoted equity firms in Nigeria. Emerging markets have different structure and institutional characteristics from developed stock markets, and in view of the fact that investors are interested in getting more insights into the activities of blue chip companies, it is imperative to find out whether stock returns in Nigeria respond differently to effects of macroeconomic factors or not.  Hence, the study investigated the effects of inflation rate, interest rate and money supply on stock returns of selected quoted firms in Nigeria from 2007 – 2016. Methodology: The population comprises top twenty-five most capitalized quoted equity firms, out of which twenty-one companies represent the sample of the study. The study adopted ex-post facto research design. The study used secondary data obtained from the audited accounts of the sampled firms, Central Bank of Nigeria Statistical Bulletin and the Nigerian Stock Exchange database and website. Analysis of data was carried out using panel data regression.  Findings: The panel regression results indicate significant negative effects between inflation rate, money supply and stock returns of selected quoted companies in Nigeria, while insignificant negative effect is revealed between interest rate and stock returns in Nigeria. Unique contribution to theory, practice and policy: The study recommends among others, taking note of the systematic risks revealed by inflation rate, interest rate and money supply when structuring portfolios and diversification strategies; and intensifying capital market sensitization campaigns by the Securities and Exchange Commission. Keywords: Inflation rate, interest rate, money supply and stock returns.