Essay on stock market performance and dynamic reactions to monetary policy shocks in Nigeria
Kenneth U. Onye, Christopher N. Ekong
This paper examines the dynamic response of three popular measures of stock market performance, namely; Stock Market Turnover, Market Liquidity and All-Shares Index, to innovations in monetary policy shocks. Relying on the structural Vector Autoregressive (SVAR) regression technique, our findings reveal that monetary policy (money supply and interest rate) shocks are not altogether neutral to the performance of the Nigerian stock market. The quantity-based nominal anchor (M2) proved to be more effective than the price-based policy variable (MPR) in enhancing the overall performance of the Nigerian stock market. In this regard, the central bank should implement contractionary monetary policy when stock prices become persistently bullish. Since stock prices are found to respond quickly and positively to shock in real GDP, boasting real economic activities becomes a fundamental prelude for stabilizing the stock market in Nigeria.