scholarly journals Dynamic Linkage between Monetary Policy and Stock Performance in Nigeria: Cointegration and ECM Techniques

2021 ◽  
pp. 1-26
Author(s):  
Ifeanyi A. Ojiako
Keyword(s):  
Time Series ◽  
Monetary Policy ◽  
Stock Market ◽  
Error Correction ◽  
Correction Term ◽  
Unit Roots ◽  
Stock Performance ◽  
Stock Market Performance ◽  
Lending Rate

Aims: To explore the dynamic relationship between stock performance and the monetary policy instruments that influence Nigeria’s stock market activities. Study Design: It uses secondary data collected from the Central Bank of Nigeria (CBN) Statistical Bulletin. The annual time series data cover a period of 38 years, from 1981-2018. Methodology: The Augmented Dickey-Fuller (ADF) unit roots' test technique was used to verify the variables' time-series properties while the Johansen procedure was applied to confirm cointegration among variables. The short- and long-run relationships were analyzed after estimating the vector error correction model. Common diagnostic tests were conducted to validate the robustness of the model estimates. Results: The results of tests of unit roots reveal all included variables as integrated of order one, I(1). The Trace-statistics showed that at least one cointegrating relationship exited among the time series, and the ECM was estimated. The emerging error correction term equation revealed the stock market performance as inversely related to both the credit to the private sector and the lending rate, but positively related to the money supply. Each variable was statistically significant (P<0.01). Also, the error correction term was well-behaved, being statistically significant (t=-3.17; P<0.01) and the desired negative sign, implying that previous periods' errors are correctable by adjustments in the subsequent periods, and to attain convergence. The error term had an adjustment speed of 44.19%. Granger-Causality analysis revealed a unidirectional causality relationship between the stock performance and the lending rate, with causality running from lending rate to stock performance, without a boomerang. The implication of the findings are threefold: the subsisting restrictive interest rate policy is unfavorable to long-term investment from the investors' perspective; the existing terms and conditions of the commercial credit packages had proven to be disadvantageous to long-term investment in Nigeria; and money supply as a monetary policy instrument in Nigeria had been used to boost investment and stock market performance. It is recommended that boosting investment and performance of the stock market in Nigeria would require the use of a more investment-friendly commercial lending rate, and relaxation of the stringent terms and conditions attached to the commercial private sector credit and loan packages. These measures would guarantee better access to fund and enhance ease-of-doing-business for investors.

scholarly journals Social and Economic Drivers of Stock Market Performance in Nigeria

2021 ◽  
Vol 3 (3) ◽  
pp. 137-143
Author(s):  
Ismaila Akanni Yusuf ◽  
Mohammed Bashir Salaudeen ◽  
Hope Agbonrofo
Keyword(s):  
Exchange Rate ◽  
Interest Rate ◽  
Life Expectancy ◽  
Stock Market ◽  
Positive Impact ◽  
Market Performance ◽  
Secondary Data ◽  
Ordinary Least Squares ◽  
Stock Performance ◽  
Stock Market Performance

The study examines the effect of the social and economic indicators on the stock market performance in Nigeria between 1981 and 2019. The study employs secondary data from the World Bank and Central Bank of Nigeria using the ordinary least squares as the technique of estimation. Findings show that regarding the economic drivers, interest rate, exchange rate, and inflation rate negatively impact the stock market while only income exerts a positive impact. However, both income and interest rate are significant economic drivers of stock performance. Regarding social drivers, life expectancy, poverty, and population exert a positive impact on stock performance. Similarly, both life expectancy and population are significant social drivers of stock market performance in Nigeria. The study recommends that monetary authorities should be cautious in avoiding discretionary policies that might hike the exchange rate; otherwise, the flow of funds to the stock market will be derailed. Also, the fiscal authority should invest massively in safety nets programmes to enhance the capacity of the growing population and reduce poverty.

scholarly journals Does Monetary Policy and Foreign Direct Investment Have an Influence on the Performance of Stock Market: Further Empirical Evidence from Ghana

2020 ◽  
Vol 2 (2) ◽  
pp. 161-176
Author(s):  
Opoku Adabor ◽  
Emmanuel Buabeng
Keyword(s):  
Monetary Policy ◽  
Foreign Direct Investment ◽  
Stock Market ◽  
Direct Investment ◽  
Market Performance ◽  
Empirical Literature ◽  
Long Run ◽  
Stock Market Performance ◽  
Short Run ◽  
Positive Effect

Monetary policy, foreign direct investment, and the stock market continue to dominate in discussions in developing countries. However, the linkage between the three variables in empirical literature remains unclear. This study aims to test two separate hypotheses: Firstly, the study examines the effects of monetary policy on stock market performance in Ghana. Secondly, the study also empirically investigates the effect of foreign direct investment on stock market performance in Ghana. Autoregressive Distributed Lag (ARDL) model was employed as an estimation strategy to examine the short and long-run effects using annual time series data from 1990 to 2019. The study revealed that monetary policy rate and money supply exerts a statistically significant negative and a positive effect on stock market performance in both the long and short-run in Ghana, respectively. It was also found that foreign direct investment has significant and a positive effect on stock market performance in Ghana in both the long and short run. Total capital stock and volume traded were also found to exert significant positive and negative impacts on stock market performance both in the short and long run respectively. Based on our findings, we recommend that expansionary monetary policy will be a better option to be carried out to improve the stock market performance in Ghana. Furthermore, government and private partnership may ensure the effective management of the macroeconomic variables to attract foreign direct investment into Ghana to boost stock market performance.

scholarly journals Monetary Policy and Liquidity of Vietnam’s Stock Market

2016 ◽  
Vol 23 (02) ◽  
pp. 02-21
Author(s):  
Ly Tran Thi Hai
Keyword(s):  
Time Series ◽  
Monetary Policy ◽  
Stock Market ◽  
Money Supply ◽  
Industrial Production ◽  
Market Liquidity ◽  
Var Model ◽  
Market Returns ◽  
Liquidity Measures ◽  
The Impact

This study investigates the impact of monetary policy on liquidity of Vietnam’s stock market from September 2007 to November 2014. Time series of liquidity are determined by monthly liquidity data for 643 enterprises in the surveyed period. Two variables of the monetary policy, including growth in money supply and interbank rate, are employed in VAR model along with four different measures of market liquidity. The results show that unexpected variance in the two monetary policy variables has no significant impact on the market liquidity, which, in turn, may be improved by the positive shocks of market returns, inflation, and growth in industrial production. Market variance does produce certain effects, but discrepancies occur in the signs of various liquidity measures.

scholarly journals Analisis Inflasi di Indonesia (Suatu Pendekatan Model Dinamik)

2018 ◽  
Vol 7 (2) ◽  
pp. 85
Author(s):  
Afrizal Afrizal
Keyword(s):  
Exchange Rate ◽  
Interest Rate ◽  
Error Correction ◽  
Money Supply ◽  
Correction Term ◽  
Research Data ◽  
Cointegration Test ◽  
The Exchange Rate ◽  
The Interest Rate

This study aims to determine the magnitude of the effect of the money supply, the exchange rate of rupiah (exchange rate) and the interest rate on inflation in Indonesia during the period 2000.12016.4. The analysis tools used for this research data are: unit root test, integration degree test, cointegration test, error correction model / ECM. The results showed that all staioner research data at level 1 (first difference) based on cointegration test showed that the variables observed in this study co-integration or have long-term relationship. The ECM model used is valid, as indicated by the error correction term (ECT) coefficient is significant. In the short run the money supply, the exchange rate of rupiah (exchange rate) and the interest rate is not significant to the inflation rate, but in the long term is significant.

scholarly journals Komparasi Jalur Moneter untuk Stabilitas Harga Dalam Kerangka Inflation Targeting Framework (Studi kasus pada interest rate, exchange rate dan credit channel)

2019 ◽  
Vol 8 (3) ◽  
pp. 181
Author(s):  
Setyo Tri Wahyudi ◽  
Rinny Apriliany Zakaria ◽  
Nurul Badriyah
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
Interest Rate ◽  
Interest Rates ◽  
Error Correction ◽  
Inflation Targeting ◽  
Correction Term ◽  
Secondary Data ◽  
Credit Channel ◽  
The Right

The monetary policy transmission mechanism has many ways in influencing inflation. This method became known as the monetary path. The use of appropriate channels in monetary policy will affect whether or not the objectives of the monetary policy are achieved. This study aims to determine which monetary path is appropriate for Indonesia, which is a developing country with an open economic system. The data used are secondary data taken from Bank Indonesia for the period 2005 to 2016. The research variables include inflation, BI-rate, credit interest rates (SBB), gross domestic product (GDP), exchange rate, bank reserve (BBR), and the amount of credit extended. This study focuses on the path of interest rates, exchange rates and bank credit using the Error Correction Model (ECM). The results of this study indicate that the right monetary path for Indonesia is the credit channel. This is because the value of the Error Correction Term (ECT) coefficient on the ECM model shows that the coefficient of the credit channel is smaller than the interest rate and exchange rate channel, which means that the imbalance that occurs can be resolved more quickly with the credit channel.

scholarly journals An empirical study of the performance of South African conglomerates

1989 ◽  
Vol 20 (1) ◽  
pp. 1-6
Author(s):  
J. F. Affleck-Graves ◽  
G. H. Burt ◽  
J. M. Cleasby
Keyword(s):  
Stock Market ◽  
Empirical Study ◽  
South African ◽  
Market Returns ◽  
Return On Assets ◽  
Return On Equity ◽  
Empirical Question ◽  
Advantages And Disadvantages ◽  
Stock Market Performance

Existant financial theory is unable to explain whether on aggregate conglomeration is beneficial to either individual shareholders or to the economy. Both advantages and disadvantages can be listed for the conglomeration process and it is thus an empirical question as to whether or not shareholders really do benefit from conglomeration. In this paper the long-term profitability of conglomerates is examined in an attempt to determine whether or not such shareholders earn superior returns on aggregate. This is done by contrasting the stock market performance of a sample of South African (SA) conglomerates over a six-year period with the performance of the overall market. In addition, their performance is contrasted with that of a random portfolio of non-conglomerate companies. Finally, a pseudo-conglomerate portfolio was constructed for each conglomerate in such a way that each portfolio had the same asset structure as its matched conglomerate. The performance of the conglomerates was then contrasted with that of the pseudo-conglomerate portfolio using market returns, return on assets, and return on equity. The results indicate that on aggregate, the conglomerates significantly underperform non-conglomerates. This is consistent with the view that conglomeration is in the interest of management rather than that of the shareholders.

scholarly journals Linkages between External Reserves and Economic Performance in Nigeria, 1981-2018: Bounds Test and ARDL Approaches

2020 ◽  
pp. 44-62
Author(s):  
Ifeanyi A. Ojiako
Keyword(s):  
Time Series ◽  
Error Correction ◽  
Foreign Exchange ◽  
Economic Performance ◽  
Unit Roots ◽  
Series Data ◽  
Foreign Reserves ◽  
Test Technique ◽  
Long Run ◽  
Bounds Test

Aims: This study seeks to explore a two-way relationship between Nigeria’s economic performance, measured by the GDP, and her stock of foreign reserves over time. Study Design: It uses secondary data - documented time series of Nigeria’s gross domestic product (GDP) and foreign exchange reserves (FER) – collected from various volumes of the Central Bank of Nigeria (CBN) Statistical Bulletin. The annual time series data cover a period of 38 years, from 1981-2018. Methodology: The time series properties of the variables were verified using the Augmented Dickey-Fuller (ADF) unit roots’ test procedure. Also, the Bounds test technique was used to test for cointegration while the autoregressive distributed-lag (ARDL) and error correction models were estimated to analyze short- and long-run relationships between the variables. Relevant diagnostic tests were carried out to validate the resultant model estimates. Results: Results of unit roots’ test reveal both GDP and foreign reserves as I(1) series. Bounds test for the GDP model revealed an observed F-statistic (.421) that is less than the critical lower bound F-statistic (4.94) at P=.05 and cointegrating relationship was not confirmed. However, Bounds test for the foreign reserves revealed an observed F-statistic (6.445) lager than the critical upper bound F-statistic (5.73) at P=.05 and cointegration was established leading to specification of a long-run error correction model (ECM). Result of ARDL model estimation shows that only one-year-lag of GDP was significant (P=.05) and positive in explaining variations in the current GDP. Previous year’s values of both GDP and foreign reserves have positive influence on the long-run foreign exchange with over 81.8% explanatory power. The adjustment coefficient of the error correction equation is highly significant (P=.001) with the desired negative sign, implying that previous periods’ errors are correctable by adjustments in the subsequent periods, and convergence is attainable. Granger-Causality test result revealed a unidirectional causality that runs from GDP to the external reserves. Conclusion: The study establishes a long-run relationship between stock of foreign reserves and economic performance in Nigeria. The finding corroborates the view that a booming economy has the propensity to attract foreign direct investment thereby boosting the stock of the country’s foreign reserves. To attract more FDI in the critical sectors of the Nigerian economy, the government should create enabling and investment-friendly environment, implement policies and programmes capable of amplify ease-of-doing-business, and boost investors’ confidence in the economy.

scholarly journals Comparison of the impact of lending and inflation rates on economic growth in Vietnam and China

2020 ◽  
Vol 15 (4) ◽  
pp. 193-203
Author(s):  
Doan Van Dinh
Keyword(s):  
Economic Growth ◽  
Monetary Policy ◽  
Time Series Data ◽  
Close Correlation ◽  
Least Square ◽  
Series Data ◽  
Lending Rate ◽  
Lending Rates ◽  
The Impact

Inflation and lending rates are two important macroeconomic indicators as they affect economic growth. The correlation between the inflation rate and the lending rate in Vietnam and China is analyzed to determine whether the lending rate causes inflation or not. An ordinary least square model (OLS) and a unit root test are applied to check the correlation and cointegration related to the inflation and lending rates to avoid spurious regression. The research time series data were collected from 1996 to 2017. The correlation of Vietnam’s variables is 56%, the correlation of China’s variables is 55%, which is a close correlation. The empirical cointegration test results for Vietnam and China are suitable for two research models. The relationship between these two indicators influences each other. In the short term, inflation stimulates economic growth through loose monetary policy through the lending rate. However, in the long term, if the money supply increases continuously, inflation will slow economic growth and increase bad debt. The empirical results are to make accurate forecasts and determine monetary policy for micro-managers who set the goal of sustainable economic growth and have a strategy for economic development in the short and long term.

scholarly journals Long-Term Capital Goods Importation and Minimum Wage Relationship in Turkey: Bounds Testing Approach

2015 ◽  
Vol 10 (1) ◽  
pp. 122-129 ◽  
Author(s):  
Serkan Tastan ◽  
Halil Ozekicioglu
Keyword(s):  
Error Correction ◽  
Minimum Wage ◽  
Correction Term ◽  
Bounds Testing ◽  
Short Term ◽  
Capital Goods ◽  
Error Correction Mechanism ◽  
Bounds Testing Approach ◽  
Testing Approach

Abstract In order to examine the long-term relationship between capital goods importation and minimum wage, autoregressive distributed lag (ARDL) bounds testing approach to the cointegration is used in the study. According to bounds test results, a cointegration relation exists between the capital goods importation and the minimum wage. Therefore an ARDL(4,0) model is estimated in order to determine the long and short term relations between variables. According to the empirical analysis, there is a positive and significant relationship between the capital goods importation and the minimum wage in Turkey in the long term. A 1% increase in the minimum wage leads to a 0.8% increase in the capital goods importation in the long term. The result is similar for short term coefficients. The relationship observed in the long term is preserved in short term, though in a lower level. In terms of error correction model, it can be concluded that error correction mechanism works as the error correction term is negative and significant. Short term deviations might be resolved with the error correction mechanism in the long term. Accordingly, approximately 75% of any deviation from equilibrium which might arise in the previous six month period will be resolved in the current six month period. This means that returning to long term equilibrium progresses rapidly.

scholarly journals Interest Rate Channel of Monetary Policy Transmission Mechanism and Commercial Banks Earnings in Nigeria

2021 ◽  
Vol 4 (3) ◽  
pp. 194-214
Author(s):  
Uzah K. C. ◽  
Clinton A.M. ◽  
Kpagih L.
Keyword(s):  
Monetary Policy ◽  
Interest Rates ◽  
Commercial Banks ◽  
Transmission Mechanism ◽  
Monetary Policy Transmission ◽  
Short Term ◽  
Policy Transmission ◽  
Lending Rate ◽  
Monetary Policy Transmission Mechanism

This study examined the interest rates channel of the monetary policy transmission mechanism and the earnings of commercial banks in Nigeria. The objective was to investigate the extent to which the interest rates channel of the monetary policy transmission mechanism affects the earnings capacity of the quoted commercial banks. Time series data were sourced from annual financial reports of the commercial banks and the Central Bank of Nigeria statistical bulletin’s various issues. Earnings measures such as earnings per share and earnings before interest and tax were modeled as the function of Monetary Policy Rate, Prime Lending Rate, Short-term Savings Rate, Long-term Saving Rate and Maximum Lending Rate. The Ordinary Least Square method of Regression Analysis was used to estimate the relationship between the dependent and the independent variables. Augmented Dickey Fuller Test, Johansen Cointegration Test, Granger Causality Test and Vector Error Correction Test were used to determine the dynamic relationship among the variables. Findings showed that short-term and long-term savings rates have negative effects while monetary policy rate, maximum lending rate and prime lending rate have positive effects on the earnings capacity of Nigerian commercial banks. Therefore, we recommend that interest rate policies should be integrated with the earning objectives of the commercial banks.

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