Empirical Analysis of Macroeconomic Variables and Stock Market Performance in Nigeria: A VAR Approach

The relationship between macroeconomic variables and stock market performance has fundamental implications for investment strategy and monetary policy, and empirical investigation using a vector autoregression framework addresses methodological gaps in the Nigerian capital market literature. This study empirically analysed the dynamic relationships between selected macroeconomic variables and Nigerian stock market performance using quarterly time-series data from the Central Bank of Nigeria Statistical Bulletin and the Nigerian Exchange Group for the period 2010 to 2023. Macroeconomic variables included inflation rate, interest rate, exchange rate, oil price, and money supply. Stock market performance was measured by the All-Share Index returns and market capitalisation. A vector autoregression model was estimated following unit root tests (ADF and PP) and Johansen cointegration analysis. Granger causality tests and impulse response functions were used to examine directional relationships. Results showed cointegrating relationships between all variables and the All-Share Index, confirming long-run equilibrium. Oil price changes Granger-caused stock market returns (F = 8.34, p < 0.001), reflecting Nigeria's oil-dependent economy structure. Exchange rate depreciation had a significant negative short-run effect on market returns (impulse response: -2.1% per 10% naira depreciation). Inflation had a negative long-run effect. Money supply changes positively predicted returns with a 2-quarter lag. The study provides updated VAR evidence on macroeconomic-stock market dynamics in Nigeria and recommends macroeconomic stability as the primary policy lever for capital market development. Keywords: macroeconomic variables, stock market, vector autoregression, Nigerian Exchange Group, cointegration