The Relatioship Between Interest Rate And Stock Market Performance In Nigeria (1980-2013)

ABSTRACT

The aim of this research work is to examine 1he relationship between interest rate and

stock market pe1formance in Nigeria from 1980- 2013 using market capitalization

(MC) as the dep1111denvt ariable', ond others as explanatory variables which are all

secondary data sourced from CB.' statistical bulletin and Nigerian Stock Exchange

bulletin respectively. The study employed some econometric techniques for simplicity.

The descriptive statistics was used to examine the trend of interest rate and market

capitalization in Nigeria from J 980 to 2013. Econometric techniques like that of unit

root test (Augmented Dickey F11l!e,) and co-integration (Johansen method) test were

used to check jor the time series properties and long run linear relationship

respectively. The result of abv,·e .,hows thut all variables used were integrated of

order one. Simi/orly the co-i111egmtion test showed that there exist long run linear

relationships bet,reen the variuhles of interest. Furthermore, the empirical results

confirms that in 1he long run. i,~flution rate, exchange rate, money supply, treasury

bill rate and moneta,y policy rule have significant effect which the appropriate signs

attached. On the other hand, the causality test x-rayed that there is a unidirectional

causality which runs from real interest rate (RJR), money supply (MS2), Treasury bill

rate (TBR) and monetary polic~r rate (MP R) to market capitalization (MC) without a

corresponding reversal feedback response. Therefore, the study recommend that there

is need for the Nigeria gover11111e1to1 1e nsure appropriate incentives and policies to

guarantee that lending rate (inlerevt rate) is kept at one digit (not high) in order to

encourage investors to borro11· money from banks and private sectors to be able to inject it into capital market.