Impact of Monetary Policy on Value of Stock Traded: Short Run and Long Run Evidence from Nigerian Stock Exchange (1987- 2017)
Chinedu Maurice Umezurike
Department of Banking and Finance, The Federal Polytechnic, P.M.B. 1012, Kaura Namoda, Zamfara State, Nigeria.
Amalachukwu Chijindu Ananwude *
Department of Banking and Finance, Nnamdi Azikiwe University, Anambra State, P.M.B. 5025, Awka, Nigeria.
*Author to whom correspondence should be addressed.
Abstract
This study examined the effect of monetary policy on value of stock traded in Nigerian Stock Exchange. Specifically, we ascertained the effect of monetary policy rate, liquidity ratio and loan to deposit ratio on value of stock traded using the Autoregressive Distribute Lag (ARDL) based on annual data from 1986 to 2017. Our findings showed that monetary policy rate, liquidity ratio and loan to deposit ratio have no significant effect on value of stock traded. Monetary policy rate maintained a negative relationship with value of stock traded, while liquidity ratio and loan to deposit ratio positively correlated with value of stock traded. We are vehemently of the view that expansionary monetary policy that guarantees adequate liquidity in the economy should be pursued vigorously by the Central Bank of Nigeria. Adequate level of liquidity offers firms’ in the stock market better access to financial resources which will increase their revenue and thus appreciation in their stocks trading.
Keywords: Monetary policy, stock market performance