Onasanya Olanrewaju. K, Femi J. Ayoola


Over the past decades, numerous studies have analyzed the relationship and the different results obtained from these studies have motivated further research. The relationship between Average share price and macro – economic variable has been well documented for the developed markets. However, this paper seeks to address the question of whether macro – economic variables have a significant with stock market movement using time series annual data for the period from 1985 – 2008. The selected macro – economic variables for study include external debt, inflation rate, real interest rate, investment, and exchange rate. The research entails the use of Argumented Dickey Fuller test, multivariate cointegration test, vector error correction, variance decomposition and causality analysis. The result was that all the variables were stationary at 2nd difference, four cointegrating equations were present i.e. long run relationship exists between the selected macro –economic variable and average share price. All macro – economic variables were insignificant but all negative relationship with ASP but only External debt was significant related to ASP. ASP and External debt were found to granger cause in pairs while an independent causality exists between the selected macro – economic variable and ASP. These show that ASP is not a leading indicator for the selected macro – economic variable.

Keywords: Macro-economic, Stock market, Inflation rate, multivariate cointegration test, External debt

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