THE RELATIONSHIP BETWEEN STOCK RETURNS AND INFLATION IN NIGERIA
Abstract:ABSTRACT
This study examines the long-run relationships
and dynamic interactions between stock returns and inflation in Nigeria using monthly data of the All Share Price Index from
the Nigerian Stock Exchange and Nigerian Consumers Price Index from January
1997 to December, 2016. The analytical technique of Autoregressive
Distributed Lag (ARDL) bound test as proposed by Pesaran et al. (2001) was
exploited. From the results, it is evident that there is the existence of a
long run relationship between stock returns and inflation. The short run
dynamic model also reveals that the speed of convergence to equilibrium is
moderate implying that there is a short run relationship between stock returns
and inflation. This is attributable perhaps to the instability of prices of
stocks noticed over time. The study concluded that there is co-integration relationship between stock returns
and inflation.