TABLE OF CONTENTS
TITLE PAGE…………………………………………………………………………….. i – iii
DECLARATION…………………………………………………………………………….. iv
CERTIFICATION…………………………………………………………………………… v
DEDICATION……………………………………………………………………………….. vi
ACKNOWLEDGMENT…………………………………………………………………. vii
TABLE OF CONTENTS………………………………………………………………. viii
LIST OF TABLES…………………………………………………………………………. ix
LIST OF FIGURES…………………………………………………………………………. x
ABSTRACT…………………………………………………………………………………. xi
1.1 Background to the Study………………………………………………………… 1
1.2 Statement ofithe Problem……………………………………………………….. 3
1.3 Objectives ofiStudy……………………………………………………………….. 5
1.4 Research Questions……………………………………………………………….. 5
1.5 Research Hypotheses……………………………………………………………… 6
1.6 Scope ofiStudy………………………………………………………………………. 6
- Significance ofithe study……………………….…………………. 6
- Definition ofiOperational Terms (Optional) …………………….. 7
2.1 Introduction…………………………………………………………………………. 8
2.2 Conceptual Framework ………………………..………………… 10
- Empirical Analysis………………………………………………………………………… 12
- Theoretical Framework………………………………………………………………….. 17
- ResearchGap (Optional)…………………………………………………………………. 18
CHAPTER III: RESEARCH METHODOLOGY
3.1 Introduction………………………………………………………………………….. 24
3.2 Research Design……………………………………………………………………. 24
3.3 Population ofiStudy……………………………………………………………….. 24
3.4 Sample ofiStudy…………………………………………………………………….. 25
3.5 Types and Sources ofiData…………………………………………………….. 25
3.6 Instrument ofiData collection…………………………………………………… 26
- Definition ofiVariables…………………………………………..… 27
- Model Specification……………………………………………………………………….. 27
- Method ofiData Analysis……………………………………………………………….. 28
CHAPTER IV: DATA PRESENTATION AND ANALYSIS
4.3 Analysis ofiData …………………………………………………………. 32
4.4 Discussion ofiFindings ………………………………………………. 34 CHAPTER V: SUMMARY, CONCLUSIONS AND RECOMMENDATIONS. 5.1 Introduction 35
5.2 Summary …………………………………………………………………………….. 35
- Conclusion…………………………………………………………………………………… 36
- Recommendations…………………………………………………………………………. 37
- Limitations ofithe Study……………………………………………………………….. 38
- Suggestionsfor Further Studies…………………………………………………… 38
REFERENCES…………………………………………………………………………….. 38
APPENDICES
CONTACT INFORMATION
ABSTRACT
This study explores the effect of monetary policy on stock market liquidity in Nigeria.The objective of the study is to find out how monetary policy affects stock market liquidity in the Nigerian economy either positively and negatively. Data for this study were collected through primary and secondary data gathering sources. Data was analysedusing responses received using questionnaire which was designed in a yes or no format. Chi- square was used to measure the discrepancies existing between the observed and expected frequency values and to also prove the level of significance in testing the stated hypotheses of the study. The Statistical Package for Social Sciences (SPSS) was employed for the analysis. The data collected from the respondents regarding the study collected data from CBN statistical bulletin from 013 to 2016. The result found that there was a significant relationship between monetary policy and GDP. Findings of the study reveal significant impact of monetary policy on the Nigerian economy. However, monetary policy show no significant effect on stock market liquidity. Moreover, no significant positive but high negative effect was observed between monetary policy and population growth in Nigeria. It is therefore recommended that policy formulators such as the CBN should strive to improve on the monetary policy guidelines aimed at enhancing market liquidity for the overall benefit of the entire Nigeria populace.
Keywords:
Monetary Policy, Stock Market Liquidity, Gross Domestic Product (GDP), Nigeria
CHAPTER I INTRODUCTION
- Study
The stock market is a public corporate market in which partnerships and individuals dealing in stock purchase and sell on a stock trade over the counter.The financial exchange can be p erceived in two different ways: the primary market is the place organizations float theirioffer s to the people dependent on the first sale ofistock to improve capital (initial public offering to improve capital). The secondary market is the place where one investor purchases shares f rom another investor at the ongoing price or dependent on the cost both the buyer and the sel ler agree. However, this law based authority controls the secondary market. Stock markets ar e very significant as it serves two key purposes: to provide the organization with assets forib usiness expansion. For instance, ifia company floats one million shares ofistock that were ini tially for 10 dollars a share, then the company will have in return 10 million capital that can be used to extend the business instead ofiborrowing thereby avoiding incurring debt and inte rest charges. The secondary intention is to empower investors to have the opportunity to part ake in the publicly traded stock benefit. A stock market is viewed as a fluid market when it has, various buying and selling orders at different costs, the expenses ofitransactions is mini mal and value unpredictability is limited. Liquidity is a multidimensional idea that is frequen tly evaluated oricalculated by various intermediaries in various financial markets.
( Sarr and lybek,
2002) argued forifive components ofiliquidity: tightness (looks for processing costs and othe r intrinsic trading costs), immediacy (efficiency in order settlement), depth (existence ofia lar ge number ofiorders both above and below the present trading pride), breadth (means that orders are both numerous and largein volume with minimal impact on prices), resiliency (it is
a characteristic of markets in which neworders flow quickly to correctorder imbalances, which tend to move prices away from what is wrranted by fundamentals. However, these measurements often overlap and the techniques used to captur e them in the empirical literature sometimes calculate one with the assistance ofianotherior i n the presence ofianother factor. Therefore, the influence ofiany single liquidity factor is reg ularly elusive although it is an important consideration in the financial market analysis and a sset pricing. The execution ofithe request as well as the execution price is uncertain where li quidity is uncertain; the investors would under such uncertainty guarantee a premium for tak ing the risk, commonly referred to in financial literature as a liquidity premium. (Ihemeje and Anumadu, 2016) defined monetary policy as the combination of measures designed to regulate the value, supply and cost of money in an economy in consonance with the level of economic activities.
Monetary policy involves managing the money supply and interest rates aimed at achieving macroeconomic objectives such as inflation control, productivity, liquidity, and consumption
. Liquidity reveals how big the trade-
offs between the speed ofithe sale and price stocks can be sold for.
Monetary Policy is referred to as the strategy adopted by the monetary authority ofia nation which controls either the loan fee payable on very short-
term borrowing or the money supply, often focusing on inflation or the interest rate to guara ntee value stability and general trust in the currency, exchange rate, and adjust the number of money banks are required to maintain as reserves.
The primary objective ofimonetary policy is to secure prizes and adequate jobs that will allo w for a stable macroeconomic condition for financial success. Promoting policies will boost economic growth and must be accomplished ifimonetary policy is properly transmitted to dif ferent channels such as the interest rate channel, credit channel and the price level is very im
portant forimonetary policymakers. In several studies, some factors have been identified as i nfluencing the demand and supply ofistock. These factors include the creation ofiassets, divi dends, government rules and regulations, inflation, investor behaviour, market conditions, an d unregulated regular or environmental conditions influencing the organizations production. Monetary authorities have used different instruments to influence policy on the various chan nels ofitransmission. Monetary policy can be direct or indirect. It is indirect when it uses ma rket-
determined tools such as open market operation, variable rediscount rate, and reserve require ments.it is direct when targeting the portfolio oriaccounting reports ofibanks in the financial framework utilizing securities for stabilization, selective credit control, and controlled interes t rates.
The transmission of monetary policy refers to how changes to the cash rate affects economic activity and inflation. When the reserve bacnk loweers the cash rate, this causes other interest rates in the economy to fall. Lower interest rates stimulates spending (Atkin and Gianna, 2017).
Structural Adjustment Program (SAP) is set of economic reforms that a country must adhere to in order to secure a loan from the International Monetary Fund (IMF), SAP are often a set of economic policies, including reducing government spending, opening to free trade (Halton, 2019).
A significant change in the formulation ofimonetary policy in Nigeria has gone ahead on th e impact ofiSAP (System Application and Products in Data Processing) as a measure to chan ge the financial system and eventually open the capital market to foreign participation. Econ omies can be driven by production, in the event that a greater amount ofiit becomes availabl e then the chances for growth increase. Ififewer actions take place, production levels drastica
lly decrease and it could be a long while before they can re- establish themselves to previous levels.
Statement ofiProblem
The monetary policy’s key objective has remained to maintain the internal and external balan ce ofipayments. However, avenues in which to achieve those objectives have continued to ch ange across the years.
From 2015 to 2018, the monitory policy’s focus was influenced by the development in the g lobal and domestic economic environment. The key challenges that led to the development o fimonitory policy on the global front were: the growth ofiprotectionists sentiments in most o fithe majoriand emerging market economies, increase in monitoring policies in advanced eco nomies, the continuing instability ofiBREXIT policy, the resumption ofimonitory policy nor malization which affected the global capital flow, the disorderliness ofithe movement oficom modity price and tepid recovery in crude oil prices. These asserted pressure on the local eco nomic environment, culminating in the manifestation ofiweak fiscal positions, low reserve ac cretion, and a foreign exchange market threatened with liquidity. While researchers have pai d so much attention to this field ofistudy, especially how stock market performance is relate d to macroeconomic variables, monetary policy variables and how it affects changes in stock market liquidity has received less attention. As variables used to describe their long-
term balance relationship, Gross Domestic Product is employed as the dependent variable an d shares, market capitalization, and turnover ratios as variables used to explain their long- run equilibrium relationship. The result indicated that a one percent increase in stock market capitalization could lead to thirty-
three percent increases in real GDP. Hence, this study investigates the effect ofimonitory pol icy on stock market liquidity in Nigeria from 2015 to 2018.
Objective ofithe Study
The objective ofithe study is to find out how monetary policy affects stock market liquidity i n the Nigerian economy, they are as follows;
- To find out how monetary policy affects the economy positively and negatively.
- To find out how monetary policy affects the economy through stock market liquidity.
- To figure out how to find a solution to the problems ofimonetary policy on the econo my.
: Research Questions
- Does monetary policy affect the Nigerian economy?
- Does monetary policy on stock market liquidity lead to an increase in the Nigerian econo my?
- Does monetary policy on stock market liquidity affect the population both positively and negatively?
