EFFECT OF SELECTED MACROECONOMIC FACTORS ON STOCK MARKET VOLATILITY IN NIGERIA

Instability in stock market is associated with diminished investor confidence, mispricing of shares and reduced participation in the market. This accentuates the need for stock market studies to go beyond conventional dimensions of stock market performance and investigate various features of stock market volatility. This study examines the effect of exchange rate, inflation, money supply and trade openness on stock market volatility in Nigeria using monthly data covering the period 2000 to 2019. The Threshold generalised autoregressive conditional heteroskedasticity (TGARCH) was employed to estimate the stock market volatility while ARDL and error correction model (ECM) were used to analysis the secondary data obtained from CBN statistical bulletin 2019. The ECM model found that only exchange rate had significant effect on stock market volatility, while inflation rate and money supply had no effect. However, the bound test indicated the existence of a long run relationship between macroeconomic factors and stock market volatility in Nigeria. The research then recommended the continuance of expansionary fiscal policies and a shift from the current multiple exchange rate regime to a unified exchange rate as these will increase aggregate investment and minimize distortions in the foreign exchange market respectively.