Thesis Abstract

Abstract
Monetary policy plays a crucial role in shaping the performance of the stock market in Nigeria. This study aims to explore the influence of monetary policy on the Nigerian stock market by analyzing the relationship between key monetary policy variables and stock market indicators. Using a combination of quantitative analysis and econometric modeling, the study examines how changes in interest rates, money supply, and exchange rates impact stock market returns, trading volume, and volatility. The findings suggest that monetary policy decisions, particularly changes in interest rates by the Central Bank of Nigeria, have a significant impact on stock market performance. Lower interest rates tend to stimulate stock market activity by reducing the cost of capital for investors and encouraging investment in equities. Conversely, higher interest rates can dampen stock market returns as borrowing costs increase, leading to lower investment levels in the stock market. The study also highlights the importance of money supply in influencing the Nigerian stock market. An expansionary monetary policy that increases money supply typically leads to higher stock prices as investors have more liquidity to invest in equities. Conversely, a contractionary monetary policy that reduces money supply can have a negative impact on stock market performance by limiting investor purchasing power. Furthermore, the study examines the relationship between exchange rate fluctuations and stock market performance in Nigeria. Changes in exchange rates can affect the competitiveness of Nigerian companies in the global market, which in turn influences stock prices. A depreciating local currency may benefit export-oriented companies but harm import-dependent firms, leading to mixed effects on stock market performance. Overall, this study provides valuable insights into how monetary policy decisions affect the Nigerian stock market, shedding light on the mechanisms through which changes in interest rates, money supply, and exchange rates impact stock market indicators. The findings have important implications for policymakers, investors, and market participants seeking to understand and navigate the dynamics of the Nigerian stock market in response to monetary policy changes.

Thesis Overview

This study evaluates the influence of the monetary policy on the Nigeria Stock Market using selected market indices which span from 1986 to 2014. Augmented Dickey- Fuller (ADF) Test, graphs, multiple regressions and the diagnostic test based on the coefficient of determination (R2) were adopted for the analysis, and mainly the study used secondary data. Evidence reveals that Interest rate as a monetary policy tool of the Federal Government of Nigeria has a negative influence on all share index and total market capitalisation, and positive influence on total value of securities traded, but none is significant. The monetary policy tool of broad money supply exerts a positive impact on all share index, total market capitalisation and total value of securities traded, but none of the impact is significant at 1% level. Exchange rate as a monetary tool of the Federal Government of Nigeria has a negative effect on all share index, total market capitalisation and total value of securities traded, but none is significant. Inflation rate as a monetary tool of the Federal Government of Nigeria has a negative effect on all share index, total market capitalisation and total value of securities traded, but none is significant at 1% level. The dominance of insignificant negative relationship between the stock market and the monetary policy variables indicates that there is a disconnection between the monetary policy and the stock market. Hence, we recommend that there should be more urgent need for the federal legislators to recognize and deal with, through their over-sight functions, the genuine reasons why policy makers do not align the monetary policy rate with the increasing government expenditure; and Government should strengthen prudent monetary policy management in order to keep alternate between policies of cheap money and tight money in varying degrees to encourage boost in the stock market, and economic growth while keeping inflation under control of not more than one digit.