Macroeconomic Performance and Stock Market Depth in Nigeria: A Non-Linear Analysis

By: Eze Ikechukwu Okereke, Kalu Uma, Ogbuagu Anuli Regina , Ogbonnaya Ikwor

Pages: 61–83, Volume: 2, Number: 2

Published by: AEFUNAI Journal of Economics, Finance and Development Studies, Alex Ekwueme Federal University, Ndufu-Alike, 9/1/2025, 2025

ISSN (Electronic): 2536-6742

DOI: 10.48028/iiprds/aefunaijefds.v2.i2.04

Macroeconomic Performance and Stock Market Depth in Nigeria: A Non-Linear Analysis

Abstract:

This study investigates the nonlinear impact of macroeconomic performance on stock market depth in Nigeria from 1981 to 2023, with market capitalization as the proxy for stock market depth. Employing the Nonlinear Autoregressive Distributed Lag (NARDL) model, the study explores the asymmetric effects of key macroeconomic indicators—exchange rate, lending rate, inflation, and gross domestic product (GDP)—as independent variables, while treating non-oil trade and foreign direct investment as control variables. The Augmented Dickey-Fuller (ADF) test reveals that the variables are integrated at different levels [I(0) and I(1)], justifying the use of the NARDL framework. The short-run results reveal significant asymmetries: exchange rate appreciation negatively affects market capitalization, while depreciation initially boosts it before reversing with a lag. Increases in lending rates and inflation reduce stock market performance, whereas declines in inflation enhance it. GDP growth significantly increases market capitalization in the short run, but in the long run, positive GDP shocks become insignificant while negative shocks surprisingly exhibit a significant positive effect—potentially reflecting speculative or policy-driven investor behavior. The long-run estimations further confirm asymmetries across macroeconomic variables, consistent with theoretical expectations. Diagnostic tests, including the Breusch-Godfrey, Breusch-Pagan-Godfrey, CUSUM, CUSUMSQ, and Jarque-Bera tests, confirm the model’s reliability, stability, and absence of serial correlation, heteroskedasticity, and non-normality. The Wald test confirms statistically significant asymmetries in both short- and long-run relationships. The study recommends tailored macroeconomic policies to manage inflation, lending rates, and exchange rate volatility while promoting sustainable economic growth to enhance stock marketdepth and resilience in Nigeria.

Keywords: Stock market depth, Macroeconomic performance, Market capitalization, Financial intermediation, Nigeria