Impact of Macroeconomic Variables on Stock Prices in Nigeria

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ECONOMICS DEPARTMENT UNIVERSITY OF NIGERIA NSUKKA

IMPACT OF MACROECONOMIC VARIABLES ON STOCK PRICES IN NIGERIA: AN ECONOMETRIC ANALYSIS UCHE, GEORGE EWA

2011

IMPACT OF MACROECONOMIC VARIABLES ON STOCK PRICES IN NIGERIA: AN ECONOMETRIC ANALYSIS

UCHE, GEORGE EWA 2007/147949

Being a research project submitted to the Department of Economics, in partial fulfillment of the requirements for the award of a Bachelor of Science Degree in Economics.

AUGUST, 2011

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APPROVAL PAGE This research work on the topic, “IMPACT OF MACROECONOMIC VARIABLES ON STOCK PRICES IN NIGERIA: AN ECONOMETRIC ANALYSIS”, by UCHE, GEORGE EWA (2007/147949) has been read and approved as meeting the requirements of the Department of Economics for the award of the B.Sc degree in Economics.

…………………………….. Date Project supervisor

……………………………… Mr. Urama

…………………………….. Prof. C.C. Agu Head of Department

……………………………….. Date

……………………………. Prof. Ezeani Dean of faculty

………………………………….. Date

…………………………….. External examiner

………………………………….. Date

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DEDICATION This work is dedicated to ‘The George’, who lives in the inside of me, the candlelight of my soul. He encouraged, motivated and advised me when the chips were down.

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ACKNOWLEDGEMENT I give reserved praise to my supervisor Mr. Urama who was patient with me, understood when I was ignorant, answered my probing questions and brought out the best in me. I also acknowledge my lecturer Rev. Dr. Fr. Ichoku who not only taught me econometrics but also serves as a source of inspiration to me. I acknowledge my parents and siblings most especially Onyi my kid sister. I acknowledge the members of Policy Analysis And Research Group (PARG), a group that groomed and remodeled me. You all, would live in my heart. I acknowledge my lecturers: Prof. Onah, Prof. Ikpeze, Prof. Agu, Dr. Fonta, Dr. Mrs Aneke, Dr. Moses, Dr. Mrs Madueme, Dr. Jude, Dr. Amuka, Mr. Eze B., Mr. Emma Nwosu, DR. Asogwa, Mr. Ugwu Johnson, Dr. Ugbor Kalu. You all impacted on my person. Lastly, I acknowledge my friends: Chibuzor, Obinna, Ify, Chima, Tony, Nezie, Felix, David, Okike, Mac Donald, Chuks and Ada. “You’ve all been wonderful”.

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ABSTRACT The movements in the stock prices are an important indicator of the economy. The intention of this study was to examine impact of macroeconomic variables on stock prices. Monthly data from January 2000 to December 2008 was used in this study. The results revealed that there was a negative impact of interest rates and inflation on stock prices, while, industrial production index, exchange rate, money supply had a positive impact on the stock prices. The VECM analysis illustrated the coefficient of ecm1 (–1), with a negative sign. The coefficient of the error correction term showed slow speed of adjustment. The impulse response graph was further used to ascertain the impact of these variables on stock prices.

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TABLE OF CONTENT

Title Page…………………………………………………………………………………………………………………………………i Approval Page…………………………………………………………………………………………………………………………ii Dedication………………………………………………………………………………………………………………………………iii Acknowledgement…………………………………………………………………………………………………………………iv Abstract………………………………………………………………………………………………………………………………….v Table of Content…………………………………………………………………………………………………………………….vi CHAPTER ONE 1.0 INTRODUCTION……………………………………………………………………………………………………………….1 1.1 BACKGROUND OF STUDY AND MOTIVATION……………………………………………………………..1 1.1.1 EFFICIENT MARKET HYPOTHESIS……………………………………………………………………..2 1.1.2 IMPLICATIONS OF THE EFFICIENT MARKET HYPOTHESIS………………………………….3 1.1.3 THE NIGERIAN STOCK MARKET………………………………………………………………………..5 1.2 PROBLEM STATEMENT……………………………………….………………………………………………….6 1.3 OBJECTIVE OF STUDY……………………………………………………………………………………………..7 1.4 STATEMENT OF HYPOTHESIS………………………………………………………………………………….7 1.5 SIGNIFICANCE OF STUDY………………………………………………………………………………………..8 1.6 SCOPE OF STUDY…………………………………………………………………………………………………….8 CHAPTER TWO 2.0 LITERATURE...
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