Bala Sani AR* and Hassan A
This study examines the linkage between exchange rates and stock market in Nigeria using annual data from 1985 to 2015. In conducting the analysis, this study utilized Autoregressive Distributed Lag (ARDL) model and Granger Causality tests. Exchange rate, economic growth, money supply and stock market (i.e., all share indexes) were captured in the model. The results show that exchange rate and economic growth have positive and statistically significant impact on stock market in Nigeria, while money supply has negative and statistically significant influence on stock market over the study period. Granger causality results indicated that there is unidirectional causality running from exchange rate to stock market. Similarly, there is unidirectional causality running from stock market to money supply. It is also indicating no evidence of causality runs from economic growth to stock market and vice versa. This study recommends the following: there is the need for policymakers to ensure effective implementation of existing monetary policy instruments and device strong way of harmonizing monetary and fiscal policies in order to maintain stable exchange rate and avoid structural break that affect the whole system including the stock market. There is also the need for Central Bank of Nigeria to reduce the volume of money in circulation, this will help to reduce the price of goods and services in the economy vis-à-vis boosting the savings and increase the levels of investment in the long run.
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