Application of Error Correction Model in Assessing the Impact of Macroeconomic Variables on Stock Market Performance in Nigeria

Fatoki Olayode; Adeleye Najeem Friday; Afolabi Nosimot Omowunmi

doi:doi:10.11648/j.ijdsa.20210703.13

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Application of Error Correction Model in Assessing the Impact of Macroeconomic Variables on Stock Market Performance in Nigeria

Fatoki Olayode, Adeleye Najeem Friday, Afolabi Nosimot Omowunmi

Published in International Journal of Data Science and Analysis (Volume 7, Issue 3)

Received: 26 February 2020 Accepted: 18 March 2020 Published: 14 May 2021

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Abstract

The objective of this paper is to investigate the relationships between some selected macroeconomic variables and stock market returns in Nigeria. Time series data on macroeconomic variables were collected from Central Bank of Nigeria (CBN) annual statistical bulletin 2018 covering between years 1981 to 2018. The error correction model (ECM) was used to show the strength of relationship between the macroeconomic variables and stock market performance. The result of the coefficients of macroeconomic variables are negative and positive values and also significant and insignificant. Hence, there is disequilibrium in the long run and must be corrected. The coefficient of parameters estimates for short run for return and gross domestic product at lag 1 are positive while values of crude oil prices, interest rate and inflation rate at lag 1 are negative. Hence, there is short run dynamic changes in crude oil prices, interest rate and inflation rate could lead to negative changes in stock market performance. The ECM coefficient is -0.80 suggesting that any disequilibrium can be corrected at the speed or rate of 80 percent within a year. In view of this, there is long run dynamic influence running from macroeconomic variables to stock market performance in Nigeria.

Published in	International Journal of Data Science and Analysis (Volume 7, Issue 3)
DOI	10.11648/j.ijdsa.20210703.13
Page(s)	69-75
Creative Commons	This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.
Copyright	Copyright © The Author(s), 2021. Published by Science Publishing Group

Keywords

Crude Oil Prices, Inflation Rate, Interest Rate, Gross Domestic Product (GDP), Stock Market Return, Error Correction Model (ECM), Nigeria

References

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[3]	Anyaduba J. O., &Idolor, E. J. (2015). Foreign Capital Flows, Financial Openness and Stock Market Volatility. Indian Journal of Economics, 96 (381), 197–238.
[4]	Asaolu, T. O. & Ogunmuyiwa, M. S. (2010). An econometric analysis of the impact of macroeconomics variables on stock market movement in Nigeria, Asian Journal of Business Management, 3 (1), 72-78.
[5]	Campbell, J. Y., &Yogo, M. (2006). Efficient Tests of Stock Return Predictability. Journal of Financial Economics, 81 (1), 21–60.
[6]	Dickey, D. A., and Fuller, W. A., (1979) “Distribution of the Estimators for Autoregressive Time Series with a Unit Root”. Journal of the American Statistical Association, Vol. 74, 427-431.
[7]	Emmanuel, E. D. & Samuel, O. A. (2009). An Impact Analysis of Real Gross Domestic Product Inflation and Interest Rates on Stock Prices of Quoted Companies in Nigeria. International Research Journal of Finance and Economics, 25.
[8]	Engle, R. F. & Granger, C. W. J. (1987). Cointegration and error correction representation, estimation and testing Econometrica, 55 (1), 231-276.
[9]	Hsing, Y. (2011). The stock market and macroeconomic variables in a BRICS countries and policy implications. International Journal of Economics and Financial Issues, 1 (1), 12-18.
[10]	Izedonmi, P. F. & I. B. Abdullahi (2011). The effects of macroeconomic factors on the Nigerian stock returns: A sectoral approach, Global Journal of Management and Business Research, 11 (7).
[11]	Jansen, M., & Moreira, M. J. (2004). Optimal Inference in Regression Models with Nearly Integrated Regressors, Working Paper, Harvard University.
[12]	Johansen, S. (1988) ‘Statistical Analysis of Cointegration Vectors’, Journal of Economic Dynamics and Control, Vol. 12, pp 231-254.
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[14]	Lanne, M. (2002). Testing the Predictability of Stock Returns. Review of Economics and Statistics, 84 (3), 407 415.
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[17]	Rault, C., & Arouri, M. E. H. (2009). Oil prices and stock markets: what drives what in the gulf corporation council countries? William Davidson Institute Working Paper No. 960. Available at SSRN: http://ssrn.com/abstract=1488936. Retrieved January 25, 2014.
[18]	Sharma, G. D., & Mahendru, M. (2010). Impact of macroeconomic variables on stock prices in India. Global Journal of Management and Business Research, 10 (7), 19-26.

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APA Style

Fatoki Olayode, Adeleye Najeem Friday, Afolabi Nosimot Omowunmi. (2021). Application of Error Correction Model in Assessing the Impact of Macroeconomic Variables on Stock Market Performance in Nigeria. International Journal of Data Science and Analysis, 7(3), 69-75. https://doi.org/10.11648/j.ijdsa.20210703.13

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ACS Style

Fatoki Olayode; Adeleye Najeem Friday; Afolabi Nosimot Omowunmi. Application of Error Correction Model in Assessing the Impact of Macroeconomic Variables on Stock Market Performance in Nigeria. Int. J. Data Sci. Anal. 2021, 7(3), 69-75. doi: 10.11648/j.ijdsa.20210703.13

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AMA Style

Fatoki Olayode, Adeleye Najeem Friday, Afolabi Nosimot Omowunmi. Application of Error Correction Model in Assessing the Impact of Macroeconomic Variables on Stock Market Performance in Nigeria. Int J Data Sci Anal. 2021;7(3):69-75. doi: 10.11648/j.ijdsa.20210703.13

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@article{10.11648/j.ijdsa.20210703.13,
  author = {Fatoki Olayode and Adeleye Najeem Friday and Afolabi Nosimot Omowunmi},
  title = {Application of Error Correction Model in Assessing the Impact of Macroeconomic Variables on Stock Market Performance in Nigeria},
  journal = {International Journal of Data Science and Analysis},
  volume = {7},
  number = {3},
  pages = {69-75},
  doi = {10.11648/j.ijdsa.20210703.13},
  url = {https://doi.org/10.11648/j.ijdsa.20210703.13},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ijdsa.20210703.13},
  abstract = {The objective of this paper is to investigate the relationships between some selected macroeconomic variables and stock market returns in Nigeria. Time series data on macroeconomic variables were collected from Central Bank of Nigeria (CBN) annual statistical bulletin 2018 covering between years 1981 to 2018. The error correction model (ECM) was used to show the strength of relationship between the macroeconomic variables and stock market performance. The result of the coefficients of macroeconomic variables are negative and positive values and also significant and insignificant. Hence, there is disequilibrium in the long run and must be corrected. The coefficient of parameters estimates for short run for return and gross domestic product at lag 1 are positive while values of crude oil prices, interest rate and inflation rate at lag 1 are negative. Hence, there is short run dynamic changes in crude oil prices, interest rate and inflation rate could lead to negative changes in stock market performance. The ECM coefficient is -0.80 suggesting that any disequilibrium can be corrected at the speed or rate of 80 percent within a year. In view of this, there is long run dynamic influence running from macroeconomic variables to stock market performance in Nigeria.},
 year = {2021}
}

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TY  - JOUR
T1  - Application of Error Correction Model in Assessing the Impact of Macroeconomic Variables on Stock Market Performance in Nigeria
AU  - Fatoki Olayode
AU  - Adeleye Najeem Friday
AU  - Afolabi Nosimot Omowunmi
Y1  - 2021/05/14
PY  - 2021
N1  - https://doi.org/10.11648/j.ijdsa.20210703.13
DO  - 10.11648/j.ijdsa.20210703.13
T2  - International Journal of Data Science and Analysis
JF  - International Journal of Data Science and Analysis
JO  - International Journal of Data Science and Analysis
SP  - 69
EP  - 75
PB  - Science Publishing Group
SN  - 2575-1891
UR  - https://doi.org/10.11648/j.ijdsa.20210703.13
AB  - The objective of this paper is to investigate the relationships between some selected macroeconomic variables and stock market returns in Nigeria. Time series data on macroeconomic variables were collected from Central Bank of Nigeria (CBN) annual statistical bulletin 2018 covering between years 1981 to 2018. The error correction model (ECM) was used to show the strength of relationship between the macroeconomic variables and stock market performance. The result of the coefficients of macroeconomic variables are negative and positive values and also significant and insignificant. Hence, there is disequilibrium in the long run and must be corrected. The coefficient of parameters estimates for short run for return and gross domestic product at lag 1 are positive while values of crude oil prices, interest rate and inflation rate at lag 1 are negative. Hence, there is short run dynamic changes in crude oil prices, interest rate and inflation rate could lead to negative changes in stock market performance. The ECM coefficient is -0.80 suggesting that any disequilibrium can be corrected at the speed or rate of 80 percent within a year. In view of this, there is long run dynamic influence running from macroeconomic variables to stock market performance in Nigeria.
VL  - 7
IS  - 3
ER  -

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Author Information

Fatoki Olayode

Department of Statistics, School of Pure and Applied Science, Ogun State Institute of Technology, Igbesa, Ogun State, Nigeria
Adeleye Najeem Friday

Department of Statistics, School of Pure and Applied Science, Ogun State Institute of Technology, Igbesa, Ogun State, Nigeria
Afolabi Nosimot Omowunmi

Department of Statistics, School of Pure and Applied Science, Ogun State Institute of Technology, Igbesa, Ogun State, Nigeria

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Plain Text BibTeX RIS

APA Style

Fatoki Olayode, Adeleye Najeem Friday, Afolabi Nosimot Omowunmi. (2021). Application of Error Correction Model in Assessing the Impact of Macroeconomic Variables on Stock Market Performance in Nigeria. International Journal of Data Science and Analysis, 7(3), 69-75. https://doi.org/10.11648/j.ijdsa.20210703.13

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ACS Style

Fatoki Olayode; Adeleye Najeem Friday; Afolabi Nosimot Omowunmi. Application of Error Correction Model in Assessing the Impact of Macroeconomic Variables on Stock Market Performance in Nigeria. Int. J. Data Sci. Anal. 2021, 7(3), 69-75. doi: 10.11648/j.ijdsa.20210703.13

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AMA Style

Fatoki Olayode, Adeleye Najeem Friday, Afolabi Nosimot Omowunmi. Application of Error Correction Model in Assessing the Impact of Macroeconomic Variables on Stock Market Performance in Nigeria. Int J Data Sci Anal. 2021;7(3):69-75. doi: 10.11648/j.ijdsa.20210703.13

Copy | Download

@article{10.11648/j.ijdsa.20210703.13,
  author = {Fatoki Olayode and Adeleye Najeem Friday and Afolabi Nosimot Omowunmi},
  title = {Application of Error Correction Model in Assessing the Impact of Macroeconomic Variables on Stock Market Performance in Nigeria},
  journal = {International Journal of Data Science and Analysis},
  volume = {7},
  number = {3},
  pages = {69-75},
  doi = {10.11648/j.ijdsa.20210703.13},
  url = {https://doi.org/10.11648/j.ijdsa.20210703.13},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ijdsa.20210703.13},
  abstract = {The objective of this paper is to investigate the relationships between some selected macroeconomic variables and stock market returns in Nigeria. Time series data on macroeconomic variables were collected from Central Bank of Nigeria (CBN) annual statistical bulletin 2018 covering between years 1981 to 2018. The error correction model (ECM) was used to show the strength of relationship between the macroeconomic variables and stock market performance. The result of the coefficients of macroeconomic variables are negative and positive values and also significant and insignificant. Hence, there is disequilibrium in the long run and must be corrected. The coefficient of parameters estimates for short run for return and gross domestic product at lag 1 are positive while values of crude oil prices, interest rate and inflation rate at lag 1 are negative. Hence, there is short run dynamic changes in crude oil prices, interest rate and inflation rate could lead to negative changes in stock market performance. The ECM coefficient is -0.80 suggesting that any disequilibrium can be corrected at the speed or rate of 80 percent within a year. In view of this, there is long run dynamic influence running from macroeconomic variables to stock market performance in Nigeria.},
 year = {2021}
}

Copy | Download

TY  - JOUR
T1  - Application of Error Correction Model in Assessing the Impact of Macroeconomic Variables on Stock Market Performance in Nigeria
AU  - Fatoki Olayode
AU  - Adeleye Najeem Friday
AU  - Afolabi Nosimot Omowunmi
Y1  - 2021/05/14
PY  - 2021
N1  - https://doi.org/10.11648/j.ijdsa.20210703.13
DO  - 10.11648/j.ijdsa.20210703.13
T2  - International Journal of Data Science and Analysis
JF  - International Journal of Data Science and Analysis
JO  - International Journal of Data Science and Analysis
SP  - 69
EP  - 75
PB  - Science Publishing Group
SN  - 2575-1891
UR  - https://doi.org/10.11648/j.ijdsa.20210703.13
AB  - The objective of this paper is to investigate the relationships between some selected macroeconomic variables and stock market returns in Nigeria. Time series data on macroeconomic variables were collected from Central Bank of Nigeria (CBN) annual statistical bulletin 2018 covering between years 1981 to 2018. The error correction model (ECM) was used to show the strength of relationship between the macroeconomic variables and stock market performance. The result of the coefficients of macroeconomic variables are negative and positive values and also significant and insignificant. Hence, there is disequilibrium in the long run and must be corrected. The coefficient of parameters estimates for short run for return and gross domestic product at lag 1 are positive while values of crude oil prices, interest rate and inflation rate at lag 1 are negative. Hence, there is short run dynamic changes in crude oil prices, interest rate and inflation rate could lead to negative changes in stock market performance. The ECM coefficient is -0.80 suggesting that any disequilibrium can be corrected at the speed or rate of 80 percent within a year. In view of this, there is long run dynamic influence running from macroeconomic variables to stock market performance in Nigeria.
VL  - 7
IS  - 3
ER  -

Copy | Download