Money Supply and Stock Market Performance in Nigeria, South Africa and Ghana

Abstract:

The study examined the effect of money supply on stock market performance in Nigeria, South Africa and Ghana using data from 1986 to 2018. The data were sourced from World Bank (World Development Indicators 2018), Central Bank of Nigeria Statistical Bulletin 2018, Johannesburg Stock Exchange Market Statistics 2018, and Ghana Stock Exchange Reports (various issues up to 2018). The study employed a simple regression model for each of the studied countries with stock market index as the dependent variable and money supply as the independent variable. Apart from the preliminary tests, Johansen Cointegration Test, Error Correction Model and Granger Causality Test were applied in the study. The results of the analyses revealed the existence of a long-run relationship between money supply and stock market performance in Nigeria, South Africa and Ghana. Also, the results showed a unidirectional causal relationship running from stock market performance to money supply in the three economies studied. As such, the study concluded that it is stock market performance that influences money supply more, rather than money supply affecting stock market performance in Nigeria, South Africa and Ghana. Thus, the study recommended that monetary authorities in Nigeria, South Africa and Ghana should focus their attention more on the effect of stock market performance on money supply in their economy, rather than the effect of money supply on stock market performance.