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Effect of Macroeconomic Determinant of Capital Market Performances in Nigeria

Effect of  Macroeconomic Determinant of Capital Market Performances in Nigeria project topics and materials download.



1.1Background to the study

The capital market in any country is one of the major pillars of long term economic growth and development. The market serves a broad of clientele including different level of government, corporate bodies and individuals within and outside the country. For quite some time now, the capital markets generally, are believed to be heart beat of the economy given their ability to respond almost instantaneously to fundamental changes in the economy (Maku & Atanda, 2010).


The capital market is known as the equity or stock market and is one of the important areas of a market economy as it provides access to capital to companies, ownership in the company for primary investors and the potentials of gains based on the firms future performance for secondary investors (Osoro,2013).


Returns from such equity investments subject to vary owing to the movement of share prices, which depends on various factors which could be internal or firm specific such as earning per share, dividends and book value or external factors such as interest rate, GDP, Inflation, government regulations and foreign exchange rate (Omodero & Ekwe,2016).

Capital market performance is the indicator of stock market as whole. It gives signal to the investors about their future moves. The movement in the price of the stock and the indexes gives the idea of the near future trend of the stock or sector as a whole (Maku & Atanda, 2010).  As financial domain is the most important one of an economy, so the capital market performance works as an indicator of the overall health of the economy. Capital market indexes typically gives the overall performance of the market, indexes reflect the performance of the economy (Barako, 2007).

Stock price is used as a benchmark or an indicator of the performance of a stock and if the price of a particular stock is rising, then it is perceived that it has certain positive news or signals. But if it decreases then there must be some news regarding its performance, which is generating negative signals to the market (Osoro, 2013).


Hence, the stock price movement and index movement show the general economic trend of a country. Capital market performance affected by a wide array of factors as economic, political, international and company specific issues, and it is imperative for the financial manager of the firms to pay due attention to the factors that influence stock  prices as this could help them enhance firm value in the market  (Garcia & Liu, 1999).

Brinson, Singer and Beebower (1991) defined macroeconomic variables as those that are pertinent to a broad economy at the regional or national level and affect a large population rather than a few selected individuals. The variables indentified as having major influence include inflation, gross domestic product (GDP), currency exchange rates, interest rates, legal and regulatory environment and risk.

These variables are closely observed by business, government and consumer and they have an impact on the capital market performance. Kwon and Shin (1999) observe that , an economy affect the performance of its capital market and by extension the most influential macroeconomic variable are GDP, exchange rate, interest rate, inflation and market risk.

Sharma and Singh (2011) found that many capital market performance, which normally carry out their investment over a long duration of time and usually they have an expectation that macroeconomic variable will remain stable and favorable to their operation over the entire duration of their investment. The movement in stock prices is directly related to some fundamentals like performance of the firm, movement in key macroeconomic variable and government actions (Karitie, 2010)

The linking of macroeconomic variable and capital market is the aggregate capital market framework, where a change in given underlying systematic risk factor influencing future returns. Most of the empirical studies, linking the state of macro-economy to capital market returns or performance, are characterized by modeling a short run relationship between macroeconomic variables and stock prices, assuming trend stationarity (Andrew & Peter, 2007). In assessing the determinants of capital market performance, this paper will mainly consider exchange rate, inflation rate, money supply and real gross domestic product (real GDP).


The performance of the capital market in any country is the indicator of general economic performance and is an integral part of the economy of any country. With the introduction of free and open economic policies and advanced  technology. Investors are finding easy access to capital market. The fact that capital market indices have become an indicator of the health of the economy of a country indicates the importance of capital market. The increasing importance of the capital market has motivated the formulation of many theories to describe the working of the capital market (Gupta, Chavaller and Sayeki, 2008).

Garcia and Liu (1999) established that macroeconomic volatility does not affect capital market performance. While Maku and Atanda (2010) revealed that the stock market performance in Nigeria is mainly affected by macroeconomic forces in the long run in Nigeria.

Ting, Feng, Weng, and Lee (2012) established that Kuala Lumpur composite index is consistently influence by interest rate, money supply and consumer price index in short run and long run in Malaysia. Mahwish (2013) established there is negative relationship between real interest rate and stock market performance in Pakistan. Jahur, Quadir and Khan (2014) established microeconomic variable such as consumer price index, interest rate have significant impact on the stock market performance in Banglade.

It is notable that there is lack of consensus of the effect of macroeconomic factors, on capital market performance. Therefore, this study will examine the macro-economic determinant of capital market performance in Nigeria.

1.3 Research Questions

  • What are the relationship between the capital market and macro-economic variable in Nigeria?
  • What are the impact of macroeconomic variable on the Nigerian capital market performance?

1.4  Research Objectives

The general objective of this study is to examine the effect of the selected macroeconomic determinant of capital market performances in Nigeria. The specific objectives of the study are:

  • Examine the relationship between the capital market and micro-economic variable in Nigeria?
  • Investigate the impact of macroeconomic variable on the Nigerian capital market performance?

1.5  Research Hypotheses

The following hypotheses were tested for the purpose of the study;

Ho1 There is no significant relationship between the capital market and macroeconomic variables in Nigeria

Ho2  there is no significant impact of macroeconomic variables on Nigerian Capital Market performance.

1.6       Significance of the study

The Nigerian Securities and Exchange Commission and Nigerian Stock Exchange (policy maker); the study findings will be of great benefit in formulations and implementation of policies related to share pricing as well as regulating of stock exchange trading. The government will also be informed on how to make policies, rules and regulations regarding trading rule that will help protect investors so as to encourage investment and spur economic growth.

Firms and individual (Investors): The finding will assist them in understanding the factors affecting share prices and they will be better informed on how to range their investment options while banks and other financial institution will be investors who seeks findings to finance share purchases. In addition, scholars and researchers will find the study useful if they wish to use the finding as a basis for carried and further research on the subject.

1.7  Scope of the study

The research covered an evaluation of macroeconomic determinant of capital market performance in Nigeria. The scope of   the study is   the Nigerian stock exchange, making use of the capital market performance indicators such as market capitalization. The study covered the period of 1985-2015 and selected macroeconomic variable such as real GDP, inflation rate and money supply in determining capital market performance.


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