The Impact of Monetary Policy on Stock Market Returns in Nigeria

The relationship between monetary policy actions and stock market performance is a fundamental question in financial economics, with direct implications for investor strategy and central bank communication policy. This study examines the impact of monetary policy instruments, specifically the monetary policy rate, cash reserve ratio, and liquidity ratio, on stock market returns in Nigeria as measured by the Nigerian Exchange Group All-Share Index. Secondary data are sourced from the Central Bank of Nigeria Statistical Bulletin and the Nigerian Exchange Group for the period 2015 to 2023. The study employs a vector autoregression model and the impulse response function to trace how shocks to monetary policy variables propagate through the stock market over multiple periods. The theoretical basis integrates the efficient market hypothesis with monetary transmission theory to assess whether asset prices adjust promptly and fully to policy signals. The period under review includes multiple interest rate cycles, a shift from the conventional monetary policy framework to an inflation-targeting-adjacent approach, and periods of significant capital market volatility. Existing empirical literature from Nigeria and comparable emerging markets provides mixed evidence on the direction and magnitude of monetary policy effects on equities, leaving room for this study to contribute clarifying evidence. Findings will be valuable for institutional investors, asset managers, the Securities and Exchange Commission, and the Central Bank of Nigeria's monetary policy committee in designing communication strategies. Keywords: monetary policy, stock market returns, All-Share Index, Central Bank of Nigeria, interest rates