Stock Market Return Volatility and Macroeconomic Variables in Nigeria

Abstract

This paper examines the impact of macroeconomic variables on stock market return volatility in Nigeria using GARCH-X model. Five macroeconomic variables: broad money supply, consumer price index, credit to the private sector, US dollar/ Naira exchange rate, and the net foreign assets, were included in the conditional variance model of the Nigerian Stock Exchange (NSE) All-share Index from January 1996 to March 2013. Results of the GARCH-X model suggest that the NSE return volatility is positively influenced by changes US dollar/ Naira exchange rates and credit to private sector but negatively influenced by changes broad money supply and inflation. On the other hand, changes in net foreign assets shows negative but not significant influence on changes in stock market return volatility. The key implication is for investors to adjust their portfolio to changes in these macroeconomic variables.