The effect of macroeconomic variables on share price movement in Nigeria: a case of non-financial quoted companies (1984 – 2005)

Complete Chapter One














        Share prices of various companies move up/down daily in the capital market across the globe.  And the factors that determine this movement have been a major concern to various interest groups especially investors, management and researchers.  This research work set out to add to the improved body of knowledge by examining the effect of macroeconomic variables on share prices over a period of twenty two (22) years from 1984 – 2005. The project also attempts to contribute to this long lasting capital market puzzles using the Nigerian capital market as a case study, companies were chosen as test cases and a regression and correlation analysis was carried out.

The research findings shouwed that interest rate, inflation rate, exchange rate, growth rate, money supply and dividend yield does not have significant effect on share prices in the Nigeria Stock Exchange.  This study ended with recommendation to various interest groups and those interested in further research.




Table of Contents                                                                         

Chapter one:  Introduction
1.1    Background of Study
1.2    Statement of Research Problem
1.3    Statement of Research Aims and Objectives
1.4    Hypotheses
1.5    Scope of study
1.6    Relevance/Significance of Study
1.7    Limitation of the Study
1.8    Definition of Terms

Chapter Two:
Literature Review

Chapter Three: Research Methodology
3.1    Introduction
3.2    Theoretical Framework
3.3    Model Specification
3.4    Method of Data Collection
3.5    Problems of Data collection
Chapter Four: Data Presentation and Interpretation of Result

4.0    Introduction
4.1    Presentation of Regression Results
4.2    Interpretation of Results
4.3    Analysis of Results and Discussion

Chapter Five: Summary, Conclusion and Recommendation


Summary of Research Findings















In an emerging and competitive economy like Nigeria, the decision to invest is taken because of the apparent or perceived benefits, which the investor hopes to get.  Investment in securities is therefore primarily for the purpose of earning income, which could be in form of dividend, profit or/and capital gains.  Though some other reason such as prestige, power and control also be adduced but the primary motive to earns some form of return.

This investment in securities is carried out through a market called the stock exchange.  Alile (1991) suggest that the stock exchange is the hallmark of the of the capital market.  While Osaze (1991) defines that the stock exchange “basically as a market where buyers and sellers of securities operate through brokers to effect  transaction in securities that have been admitted for listing on the exchange”.  Famnia (1970) “theory of efficient  market hypotheses suggests that stock markets are efficient because they reflect the fundamental macroeconomic behaviour.  This efficiency implies that a financial market incorporates all relevant information (including macro-economic fundamentals) in the market, in which the outcome is the best possible under the circumstances.

Ibru (2000) said “it helps in the mobilization of domestic and foreign savings for productive investment which is vital for capital formation for economic growth and development.  It’s also assists in transmitting information on share price and trading volume to the public (Olowe, 1997).

Like other markets, stock exchange facilities communication is between buyers and sellers.  According to Osaze (1991), securities traded in the capital market can be categorized into fixed securities, variable income securities and others.  Ibru (2000) puts it specifically to include ordinary share, preference share, debenture or cooperate bond, gifts and state government bond.  This study will concentrate on the variable income securities with emphasis on common stock, which is the major type of income securities.  Besides the various activities in the stock exchange as depicted by the movement and behaviour of stock price and volume of trading recorded is a measure of performance of the economy.

The stock exchange as a market shows the price of securities fluctuating daily as can be seen from daily official list of the exchange although this fluctuation is not peculiar to Nigeria.  A tremendous surge in price of stock has been accompanied by large daily fluctuation and historically high trading volume, so it is not surprising that such activities have generated new interest in the question of what are the bases for these movements in the stock prices.

The reasons behind movement of prices have been subject to many research works though there has been consensus as to what accounts or determines this movement.  However, Omolehinwa (2001) said, it may be caused by company’s sensitivity to general economic factors (systematic note), information organize through efficient and determine way, or factors specific to the company (unsystematic note), information not organize through efficient and determine way.

Also, Osaze (1991) identified three categories of factors as fundamental factors, technical factors, and efficient market hypothesis.

The fundamental factors are further categorized into company related, industry related, political, volume of trading, earnings and dividend.  Therefore it makes sense, that to make money in stock market, we need to understand what causes price to change.  By having appreciation for things that motivate stock price changes we can be better at anticipating the direction and velocity of price moves (, 2002).  Having said all these, it is obvious that the economic environment, which a company operates affects it, hence economic related factors will be examined.



The role of capital market in the growth and development of any economy cannot be over emphasized.  Its performance at any given time-shares a level of growth in the economy.  A look at the daily official list of Nigerian stock exchange reveals that share prices of various companies assumed upward/downward trend.  Going by the assumption in financial analysis that the objective of a firm is to maximize the shareholder’s wealth then the reasons for this, movement should be of concern hence this study will look at the effect of the macroeconomic variables (Interest rate, inflation rate, exchange rate and gross domestic product (GDP) growth rate) on share prices.  To be more specific, answers to the following question are sought:

What is the reason for this share price movement?

Do macroeconomic variables affect share prices?

Is there any relationship between macroeconomic variables and share prices?



The aim of this research is to analyze the impact of macro economic variables on the prices of shares in stock market.  The objectives of this research includes the following:

To highlight the cause not share price shift.

To find out their relationship between macroeconomic variables and share price.

To find the degree at dependence of share prices.



The following hypotheses are to be tested in this study:

Interest rate affects share price in Nigerian stock exchange.

Inflation rate affects share prices in Nigerian stock exchange.

Exchange rate affects share prices in Nigerian stock exchange.

Gross domestic product 9GDP) growth rate affects share prices in Nigerian stock exchange.



Nigerian stock exchange is the only capital market in Nigeria where securities are traded.  This study will focus on the ordinary share prices of companies listed on the stock exchange.  The period of study shall be between 1980 – 2005 (26 years).
Many companies are listed on the stock exchange and in different sector (e.g. conglomerate, brewery, food and beverage etc.).



Majority of studies done on share prices behaviour have been on company related factors like dividend policy, earnings, price earning ratio etc, since Nigerian economy is becoming more deregulated and with more companies being listed on the floor of the exchange, also with public awareness of activities, going on in the capital market, it becomes more imperative that this study be carried out to contribute to the existing knowledge or share price behaviour.  Besides, it will aid management of Nigeria publicity quoted companies in hedging against any risk that might emanate from these macroeconomic variables.



The major limitation of this study is the smallness of sample size, time period, under investigation and of course, the availability  of data.  All these were as a result of finance and time factor.



Shares:  These are equities listed on Nigerian stock exchange.  These shares belong to the actual owners of the companies who assume the ultimate risk and are entitled to dividend after all other interest have been satisfied.

Capital Market: This is a market for long-term securities.  It is made up of a network of financial institution that brings together suppliers and users of funds in the financial intermediation.

Price: Price refers to the market price of the common stock as determined at the dealing session.  It could also be referred to as quotation.

Nigerian Stock Exchange: This is a non-profit making organization primarily responsible for supporting the capital raising process by providing the best quality, most efficient and cost effective market place for the trading of financial instruments.

Quoted Companies: These are public liability companies whose securities are listed on the Nigerian Stock Exchange.

Securities: As used in this study, securities are refers to equities, popularly referred to as ordinary shares.

Data collection:  this is necessary in any critical step taken in any research work.  It deals with how those data will be analyzed, accessed from their sources.  Two basic sources of data collection exist and they are primary source and secondary sources.

Primary sources:  This sources include carrying out an original investigation to obtain primary data and specifically for your purpose.  Data from such sources are usually attained through surveys, observations and experiments.  Ojaremeruaye and Oaikhenan (2001) explained that these data are obtained directly by the researcher through interviews, questionnaires, and direct observation are known as primary data.

Secondary source:  Any previously published or documented work. Any related subject matter will be secondary source of data collection for a research work.  The data collection from such sources are referred to as secondary data.  The researcher will develop various data gathering techniques in the course of this work.  The more sources of data will be secondary nature.

The research will access Nigerian stock exchange daily official list, Federal Office of Statistics publications, CBN publication, Textbooks, magazines, Journals, and newspapers, etc.




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