THE EFFECT OF SELECTED MACROECONOMIC VARIABLES ON STOCK MARKET PRICES: EVIDENCE FROM GHANA AND NIGERIA (1990-2013)

Author: Nkechukwu Chukwu Gabriel
Department: Banking and Finance
Affiliation: Nnamdi Azikiwe University Awka

This research work examines the effect of macroeconomic variables on stock market prices in Ghana and Nigeria between 1990 and 2013. The annual time series data on macroeconomic variables (i.e. gross domestic product, inflation rate, interest rate and money supply) for the two countries were obtained from the World Bank official publications. Ghana Stock Exchange All-Share Index (proxy for Ghana stock market prices) was derived from Bank of Ghana publications. Nigerian Stock Exchange All-Share Index (proxy for Nigeria stock market prices) was obtained from the fact-book of Nigerian Stock Exchanges; the Central Bank of Nigeria’s Annual Reports and Statement of Accounts and Statistical Bulletin. The study employs Johansen’s 1988 cointegration and vector error correction model tests based on the arbitrage pricing theory (APT) model of Ross (1976). Results indicate that all the macroeconomic variables included in the study are cointegrated with stock market prices both in Ghana and Nigeria. However, the results of Granger causality tests indicate that money supply has no causal effect on stock prices in Nigeria; therefore money supply and stock prices are independent variables. Again, Ghanaian stock market prices and money supply and inflation are observed to be independent as there is no causal effect existing among them. GDP and stock prices have uni-directional causal effect with direction running from GDP to stock prices in Nigeria; but GDP and stock prices have bilateral causal effect in Ghana. We recommend that monetary and fiscal policy makers both in Ghana and Nigeria should formulate and implement policies that are responsive to stock market prices to enable them forecast and plan macroeconomic variables. In addition, variables, such as gross domestic product, that are stock price-shaping must be given attention in their planning. Also, investors who wish to analyze macroeconomic factors before embarking in stock market investment should equally focus on stock price-shaping variables if they are to maximize their investment.

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