Effects of Exchange Rate, Interest Rate, and Inflation on Stock Market Returns Volatility in Nigeria

Abstract

This study employed GARCH (1.1) techniques to evaluate the existence of high stock market returns volatility, and the impact of the exchange rate, interest rate and inflation on stock market returns in Nigeria, using monthly series data from 1995 – 2014. Excessive volatility hinders the stock market from playing its role of Mobilizing, financial resources from surplus units to deficit units and may cause a financial crisis. The research finding shows that interest rate has a negative relationship with stock market returns, while the inflation rate and exchange rate have a positive relationship with stock market returns. The conclusion therefore is, there is high and persistent volatility in the Nigerian stock market returns. Exchange rate, interest rate, and inflation significantly impact stock market return volatility in Nigeria. The study recommends that regulatory authorities should take proactive steps to minimize stock market return in order to restore confidence in the market.

Comparison of Arima, Transfer Function and Var Models for Forecasting Cpi, Stock Prices, and Indonesian Exchange Rate: Accuracy vs. Explainability

“…Whereas in the study of Nkoro & Uko (2016) and Wahyudi et al (2017), inflation has a negative effect on stock price. Similarly, the exchange rate variable showed a different effect on the stock price variable with a positive effect was obtained in the study of Okechukwu et al (2019) and negative effect from the study of Yogaswari et al (2012), Nkoro & Uko (2016) and Putra (2016). Furthermore, it turns out that using data with different frequencies can produce different conclusions as in the study of Mgammal (2012) where the exchange rate variable has a positive effect when using monthly data and has a negative when using quarterly data.…”

“…First, studies that only focus on examining the effect of each macroeconomic variable on stock price, i.e. Nkoro & Uko (2016) and Okechukwu et al (2019) used the Generalized Autoregressive Heteroscedasticity (GARCH) method to determine the effect of exchange rate, inflation, and interest rate on Nigerian stock prices, Wahyudi et al (2017) used the Threshold Autoregressive Conditional Heteroscedasticity (TARCH) method to observe the effect of inflation, exchange rate, interest rate, GDP, crude oil price, primary commodity price, and wage in five ASEAN countries. Mgammal (2012) used multiple linear regression to determine the effect of inflation, exchange rate and interest rate on stock price of the United Arab Emirates and Saudi Arabia.…”

“…Empirical results from previous studies above indicate that there is no definite pattern of relationships between macroeconomic variables. For example, Yogaswari et al (2012), Putra (2016) and Okechukwu et al (2019) showed that inflation has a positive effect on stock price. Whereas in the study of Nkoro & Uko (2016) and Wahyudi et al (2017), inflation has a negative effect on stock price.…”

Reaksi Pasar atas Pengumuman Penurunan Bank Indonesia 7-Day Reverse Repo Rate

“…Semakin kecil return dari deposito atau obligasi maka semakin besar kemungkinan investor untuk beralih investasi di saham. Adapun beberapa penelitian yang mendukung hasil penelitian tersebut, antara lain: Ramsharan (2019), Hajilee & Nassel (2017), Okechukwu et al (2019), Amarasinghe (2015), Rjoub, (2017), Dadrasmoghadam & Akbari (2015), Okoro et al (2018), dan Oshaibat & Majali (2016).…”

Nilai Tukar Dan Inflasi Terhadap Return Saham Melalui Kinerja Keuangan

“…(Kaur, 2016), di India menjelaskan inflasi berpengaruh pada return saham, nilai tukar tidak berpengaruh pada return saham. Hasil (Okechukwu, Mbadike Geoffrey, 2019), menunjukkan suku bunga memiliki hubungan negatif dengan pengembalian pasar saham, sedangkan tingkat inflasi serta nilai tukar memiliki hubungan positif dengan pengembalian pasar saham.…”