Capital Market Performance and Macroeconomic Dynamics in Nigeria

TL;DR

This study investigates how macroeconomic factors like exchange rate, inflation, money supply, and unemployment influence Nigeria's capital market performance, confirming the relevance of Arbitrage Pricing Theory in this context.

Contribution

It provides empirical evidence of a long-term relationship and causality between macroeconomic variables and capital market performance in Nigeria, supporting APT.

Findings

Long run relationship between macroeconomic factors and capital market performance.

Causality runs from exchange rate, inflation, money supply, unemployment to market performance.

Supports Arbitrage Pricing Theory in the Nigerian context.

Abstract

The study examined the relationship between capital market performance and the macroeconomic dynamics in Nigeria, and it utilized secondary data spanning 1993 to 2020. The data was analyzed using vector error correction model (VECM) technology. The result revealed a significant long run relationship between capital market performance and macroeconomic dynamics in Nigeria. We observed long run causality running from the exchange rate, inflation, money supply, and unemployment rate to capital market performance indicator in Nigeria. The result supports the Arbitrage Pricing Theory (APT) proposition in the Nigerian context. The theory stipulates that the linear relationship between an asset expected returns and the macroeconomic factors whose dynamics affect the asset risk can forecast an asset's returns. In other words, the result of this study supports the proposition that the dynamics in the exchange rate, inflation, money supply, and unemployment rate influence the capital market performance. The study validates the recommendations of Arbitrage Pricing Theory (APT) in Nigeria.