Most studies conducted on the determinants of stock price movements in Nigeria have been done on theoretical basis with no quantitative empirical evidence to support their postulations. Consequently, this study examined the macroeconomic determinants of stock price movements in Nigeria using detailed econometric framework in order to provide the foundation for evidence-based policies. Both the long-run and short run dynamic relationships between the stock price movement and the macroeconomic variables were analyzed with timeseries data that spanned from 1985 to 2010 using the Engle-Granger two-step cointegration test. We established that there is no cointegration between the variables, indicating the absence of long run relationship. Results of the regression indicate that the monetary policy variables (real exchange rate, real interest rate and money supply) as well as political instability are not the determinants of stock price movements in Nigeria; however, inflation was found to be a major determinant of stock price movements.

The study recommends that the monetary authorities (that is the Central Bank of Nigeria, CBN) and policy makers should pay attention to changes in money supply and inflation in view of their sensitivity to stock price movements in Nigeria. Key words: Stock Price Movement; Monetary Policy Variables; Cointegration; Inflation, CBN; Nigeria 1.Introduction The stock market has become an essential market playing a vital role in economic prosperity by fostering capital formation and sustaining economic growth in most economies across the world. Stock markets are more than a place to trade securities; they operate as facilitator between savers and users of capital by means of pooling of funds, sharing risk, and transferring wealth. Stock markets are essential for economic growth as they ensure the flow of resources to the most productive investment opportunities (Udegbunam and Eriki, 2001). Guglielmo et al. (2004) argue that the primary benefit of a stock market is that it constitutes a liquid trading and price determining mechanism for a diverse range of financial instruments. This allows risk spreading by capital raisers and investors and matching of the maturity preferences of capital raisers (generally long-term) and investors (short-term). This in turn stimulates investment and lowers the cost of capital, contributing to the economic growth of a nation in the long term. It is worth noting that stock price all over the world including Nigeria is characterized by upward and downward movements.

Meristem Research of August 2008 describes the Nigerian stock market as a secular market driven by forces that could be in place for many years, causing the price of a particular investment or asset class to rise or fall over a long period of time. While on the one hand, in a secular bear market, weak sentiment causes selling pressure over an extended period of time. On the other hand, in a secular bull market, strong investor sentiment drives prices higher, as there are more net buyers than sellers. Trading volumes (number of shares) in the stock market constantly fluctuated strongly as stock prices change in stock markets on a daily basis. In Nigeria, just like in many other countries of the world, the question of what determines stock price movements (upward and downward) is seen to provoke diverse answers from different circles. The known efficient market theory believe that stock prices reflect everything that is known about a company and hence can be predicted based onfundamental analysis, while proponents of technical analysis attempt at forecasting future security prices based on historical data. The factors driving stock price movements have become issue of concern to both researchers in academics and professional portfolio managers. While few researchers have approached the determinants of stock pricemovements from the micro perspective, few others approached it from macro perspective. Incidentally, few studies in Nigeria have attempted to provide empirical evidence of the determinants of stock price movements (for instance Udegbunam and Eriki, 2001), while few others have done that at theoretical level (for example Meristem Research, 2008). While the study by Udegbunam and Eriki (2001) is lagging behind in time especially in the face of the recent global financial crisis, Meristem Research (2008) only provides a theoretical exposition that lacks quantitative empirical evidence. Again, at the different countries level, studies conducted on the determinants of stock price movements showed divergent outcomes, even though it seems that some determinants commonly appeared for all stock markets. However, it is difficult to generalize the results due to the various conditions that surround each stock market environment. This is because each market has its own

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