Impact Of Monetary Policy On The Nigerian Stock Market. (An Empirical Investigation) (1996-2006).

ABSTRACT

This project research study examined the impact of monetary policy on the Nigerian Stock market within the period 1996-2006. This was informed by the fact that despite the policy measures adopted by the government, the monetary policy has rarely had a positive impact on th3 Nigerian Stock market growth and the Nigerian economy. (Onyluke: 2006). Thus the broad objective of this study was to analyze the impact of monetary policy on Stock market performance and specifically: to evaluate the magnitude of the relationship between economic growth and monetary policy, to determine the effectiveness of monetary policy instrument in operation and to show the relationship between the Stock market performance and economic growth. Time series data were used for the study and analyzed using regression analysis. In doing this, the EVIEWS econometric package was used and results indicated that monetary policy proxied by monetary policy rate, lending rate, liquidity rate, cash reserve ratio, and exchange rate had a significant relationship with the Stock market performance as the a priori expectation is that an increase in monetary policy will lead to less money supply and therefore the low Stock market performance. It was also discovered that monetary policy closely related and highly significant to economic growth is a powerful tool that can be applied to strengthen and regulate its activities as it exerted a great influence on the economy. Finally, the findings depicted that stock market performance proxied by market capitalization, All-share Index, turnover value, number of deals and number of securities was highly significant but has not been properly enhanced to affect the economic growth to a large extent as All-share index which is a major instrument was negatively related which does not conform to a priori expectation. Based on these results, it was recommended that appropriate workable measures that could strengthen and increase overall efficiency should be adopted, proper emphasis should be laid on the liquidity and activities of the stock. market in order to improve its performance and lastly adequate enlightenment and sound orientation should be given to individuals and companies on the advantages of investment.