THE IMPACT OF MACRO-ECONOMIC VARIABLES ON THE NIGERIAN CAPITAL MARKET
TABLE OF CONTENT
CHAPTER ONE: INTRODUCTION
1.1    Background To The Study                    
1.2    Statement of The Research Problem            
1.3    Research Question                         
1.4    Research Objectives                         
1.5    Research Hypothesis                        
1.6    Significance of The Study                    
1.7    Scope of The Study                        
CHAPTER TWO: LITERATURE REVIEW
2.1    Introduction                            
2.2    Dynamics of The Stock Market                 
2.3    Characteristics of The Nigerian Stock Market        
2.4    The Determinants of Stock Market Prices        
2.5    Stock Market Efficiency: The Nigerian Experience    
2.6    Macroeconomic Variables: Empirical Review        
2.7    Market Review                            
2.8    Macroeconomic Stability                    
2.9    Relationship Between Stock Market And Macroeconomic Variables: (Review Of Previous
Studies)                                 
2.10    State of The Nigerian Stock Market And Options For Investors                         
2.11    Theoretical Framework                    
CHAPTER THREE: RESEARCH METHODOLOGY
3.1    Introduction                             
3.2    The Population                            
3.3    Sample and Sampling Design                
3.4    Sources and Classification of Data                 
3.5    Models Specification                        
3.6    Method of Data Analysis                    
CHAPTER FOUR: EMPIRICAL ANALYSIS
4.1    Introduction                            
4.2     Granger Causality Testing                    
4.3     Regression Analysis                        
CHAPTER FIVE: SUMMARY, RECOMMENDATION AND CONCLUSION
5.1     Summary of Findings                        
5.2    Policy Implications of Results                
5.3    Recommendations                        
5.4    Conclusion                                
Bibliography                            
Appendices                             
CHAPTER ONE
INTRODUCTION
1.2    BACKGROUND TO THE STUDY
The Nigerian stock market is growing, it is however characterized by complexities. The link between stock market performance and macro economic variables has often generated strong controversy among analyst based on their study of developed and emerging markets. (Samuel et al; 1996). The stock market serves as a veritable institution for the mobilization and allocation of savings among competing uses which are critical to the growth and efficiency (Alile, 1984). The world’s developed stock market and generally assumed to be more liquid and efficient compared to their counterparts in emerging counters. Also, previous studies provide adequate evidence suggesting the existence of relationship between stock market and macroeconomic variables.
    Macroeconomic stability may be an important factor for the development of stock market. We expect that the higher the macroeconomic stability, the more incentives and firms and investors have to participate in stock market. Furthermore, corporate profitability can be affected by monetary, fiscal and exchange rate policies. Therefore, we expect the stock market in countries with stable macroeconomic environment to be more developed. To determine the impact of macroeconomic stability or market capitalization, we use two measures.
Macroeconomic stability: Real interest rate and current inflation mainly because of their importance in previous studies (Garcia and Liu, 1999). Regarding inflation, the conventional wisdom about the role of stocks is that they provide hedge against inflation or that the nominal equity returns should be positively related to inflation. Mc Carthy, Najand and Seifert, 1990) “Empirical test of the proxy hypothesis” however, suggests a negative relationship between returns and inflation. Macroeconomic is the state of the operations of the economy as a whole (Fischer and Dornbash, 1983). The focus of the analysis is macroeconomics is the total production of goods and services in the economy or Cross National Product (GNP/GDP). Thus, macroeconomic policy general consist of a package or set of policy measures that are adopted by the government during a given period to achieved the stated national goals or objectives that inform such policies. The package of policy elements, very often comprise of interest rate, inflation rate, exchange rate etc. These policies are often designed to address specific problems like price stability, real economic growth, full employment and balance of payment equilibrium (Gbosi, 1995, and Gardner, 1961).
    However, there is need to appreciate that macroeconomic policy element are interdependent calling for collaboration in their design and implementation in order to achieve the set goals or objectives. For instance, the financing of government expenditure, through budget deficit, affect monetary policy particularly if the borrowing is made from domestic financial markets. This is the implicit part of one policy measure on another must be taken into consideration in designing macroeconomic policy (Okowa, 1995).
    Given that the stock market provides some services that ginger macroeconomic factors, this study, therefore empirically investigates the relationship between the stock market and macroeconomic variables (interest rate, inflation rate, exchange rate) in Nigeria covering the period of 1985 to 2010. Also, in this study we examine the extent to which macroeconomic variables are able to explain the variables in equity returns in emerging stock market. However, the ability of each macroeconomic variable to explain returns variation in each market is expected to vary greatly.
1.2    STATEMENT OF THE RESEARCH PROBLEM
 This research aims at expanding the relationship between stock market capitalization and the macroeconomic variable i.e, interest rate, inflation rate and exchange rate. Thus, the problem of this research is to determine the extent of the relationship between the capital market or stock market and macroeconomic variables or to measure the impact of macroeconomic variables on stock market capitalization.
1.3    RESEARCH QUESTION
i.    Is there any relationship between market capitalization and money supply?
ii.    Does interest rate affect market capitalization?
iii.    Is there any relationship between inflation rate and market capitalization?
iv.    Is there any relationship between real gross domestic product and market capitalization?
v.    Does all shares price index have any effect on market capitalization?
1.4    RESEARCH OBJECTIVES
i.    To determine the impact of money supply on market capitalization.
ii.    To evaluate the impact of interest rate on market capitalization.
iii.    To find out the effect of inflation on market capitalization.
iv.    To analyse the impact of real gross domestic product on market capitalization.
v.    To determine the impact of all share index on market capitalization.
1.5    RESEARCH HYPOTHESIS
a)    Ho:    There is no significant relationship between money supply and market capitalization.
b)    Ho:    There is no significant relationship between interest rate and market capitalization.
c)    Ho:     There is no Significant relationship between inflation and market capitalization.
d)    Ho:     There is no significant relationship between real gross domestic product and market capitalization.
e)    Ho:     There is no significant relationship between all share index and market capitalization.
1.6    SIGNIFICANCE OF THE STUDY
Due to the giving interest in activities of the stock market and how it affects our everyday lives, this study will show if there is a direct or indirect relationship, between stock market capitalization and macroeconomic variables, (interest rate, inflation rate, exchange) in Nigeria and to further prove whether this relationship is positive or negative.
Specifically, the findings of this study will be relevant to the following interest groups
1.    Policy Makers: The findings of this study will guide policy makers in designing financial policies.
2.    Government: This research study will help to plan a budgeting process and other obligations.
3.    Students of Finance and other Related Discipline: This study will increase the availability of information for finance students and other related discipline and will serve as a basis for further research in this area.
4.    Researchers and Academicians: This study will expand their knowledge horizon as well as deepen their understanding of the various relevant concepts relating to stock market and macroeconomic variables.
5.    Investors: This research study will help in boosting the forecasting activities of investors and improve their understanding of stock market and macroeconomic variables.
1.7    SCOPE OF THE STUDY
Identifying the relationship (if any) between stock market capitalization and macroeconomic variables in  Nigeria is the major focus of the study. This study covers the period from 1985 to 2010, this is because the stock indexes are based on time series scale.
    This study covers the Nigerian economy and the variables of interest rate, inflation rate, and exchange rate as can be obtained from the Central Bank of Nigeria (CBN) statistical bulletin.