Nigerian Stock Returns and Macroeconomic variables: Evidence from the APT Model

ABSTRACT: The study empirically investigates the relationship between the macroeconomic variables that affect the stock returns during the years between 2005M1- 2010M1 for the Nigerian Stock Exchange (NSE). The Arbitrage Pricing (APT) modeling framework is conducted by assuming the risk factors in the model as observable macroeconomic variables to explain the stock return variations. A multifactor regression model in this framework is employed to show the relevant macroeconomic variables namely: industrial production, interest rate, inflation, exchange rate and money supply. The Ordinary Least Square (OLS) technique is applied to test the validity of the model and the relative importance of different variables which may have an impact on the Nigerian Stock returns within the Nigerian economy. Based on the empirical results estimated, explanatory power supports the view that macroeconomic variables explain a significant part of the observed variations in Nigerian Stock Market returns for the sample period. Namely Consumer price index, short-term interest rate, and money supply have a big influence on Nigerian Stock Market returns. Keywords: APT, CAPM, OLS Analysis, Nigerian Stock Exchange, Nigerian Economy. ……………………………………………………………………………………………………………………………………………………………………………………………………………………