Share Price and Macroeconomic Variables in Nigeria: A Granger Causality Approach

The objective of this study is to investigate the relationship between share price and macroeconomic variables in Nigeria using monthly variables from January 2001 to December 2014. Johansen cointegration test is employed to investigate if there is a possible long haul relationship between variables and vector error correction model (VECM) is used to see if thus the long run relationship exists between share price and the variables under study. Estimates reveal the existence one cointegration equation exists between share price and the macroeconomic variables under study. VECM exhibit long run relationship running from CPI, M2, EXR, OP, and INTR to SP and it‟s all statistically insignificant. Furthermore, unidirectional causality exist from OP to SP, SP to M2, SP to EXR, INTR to OP, OP to EXR, M2 to EXR, EXR to INTR and CPI to EXR. However, bidirectional causality exists from EXR to M2. Keywords: Share price, macroeconomic variables, cointegration and Granger causality