Macroeconomic Variables and Stock Returns in Nigeria

Abstract

Macroeconomic instability has been a major issue in emerging economies, as volatility in key indicators can affect market behaviour. In Nigeria, volatility in exchange, interest, and inflation rates has persistently raised concerns about its implications for stock market returns and investor confidence. This study investigates how fluctuations in exchange, interest, and inflation rates affect investor behaviour and market returns on the Nigerian Exchange. The secondary time-series data from 1986 to 2024. The ARCH and GARCH models were both employed to estimate the data collated. Our findings show that stock returns responded positively to changes in exchange and inflation rates, while interest rates responded negatively to stock returns in Nigeria. The study, therefore, concludes that macroeconomic stability is a key factor in improving stock market performance and investment confidence. The study recommends effective macroeconomic management to stabilize movements in exchange rates, interest rates, and inflation to maintain the growth and efficiency of the Nigerian capital market.