Macroeconomic Environment and Stock Price Movement in Nigeria: An Evaluation of Fama’s Model of Efficient Market

John O. Udoidem, Bassey I. Frank & Boniface C. Ekanem

Download article picture_as_pdf

Abstract

The study examined the link between macroeconomic environmental dynamics and stock price movements in Nigeria using Fama’s model of efficient market approach. The macroeconomic climate posed issues for Nigerian stock markets. The buying power of local currency occasionally impacted unfavourable changes in the majority of macroeconomic variables. In this study, an ex post facto research design was used. The study looked at certain macroeconomic variables and the evolution of Nigerian stock prices between 1985 and 2021. To test the hypothesis, quantile regression estimates of the Fama-French three-factor coefficient were derived. The findings showed that the interest rate and stock price movement have a negative and negligible association. Additionally, a strong and positive correlation was observed between the exchange rate and changes in stock prices. It was recommended that in order to promote stock market activity and, by extension, enhance stock prices in Nigeria, a suitable monetary policy and a sufficient amount of money supply must be implemented. Also, well-diversified portfolios that mirror the entire market portfolio should be recommended to investors to protect themselves against stock price volatility. This would serve as a guide to protect them against shocks resulting from the macroeconomic environment.

Authors

Read more