Project Materials

EVALUATION OF THE IMPACT OF INFLATION ON NIGERIA STOCK MARKET RETURNS.

Chapter one

INTRODUCTION

1.1 Background of the Study.

The stock market is a frequent component of a contemporary economy, and it is seen to serve roles that encourage economic growth and development. The market is an economic institution that promotes efficient capital formation and allocation.

It helps governments and industry to raise long-term money to fund new initiatives as well as develop and modernise industrial and commercial operations. Because stock market investment is long-term, any development that threatens political or economic stability has a significant impact on stock market performance.

According to Corrado and Jordan (2002), inflationary rates, among other things, might influence market performance. Economists have long recognised inflation as a crucial element that might derail any country’s economy. In Nigeria, the issue of inflation has forced the monetary authorities to seek solutions on a regular basis.

As a result, understanding the impact of macroeconomic factors such as inflation on stock market performance is important for investors and policymakers. The performance of the stock market influences that of the economy, and vice versa.

According to Alile (1997), the primary goal of the global stock exchange remains the maintenance of an efficient market, with the attendant benefit of economic growth.

In recent years, there has been increased concern over the role of the stock market in economic growth (Levine and Zervos, 1996; Demirguc-Kunt and Levine, 1996; Oyejide, 1994; Nyong, 1997; Obadan, 1998; Onosode, 1998; Emenuga, 1998; Osinubi, 1998).

Economists and policymakers are interested in the stock market because they believe it benefits the economy. The stock market is a valuable tool for mobilising and allocating savings among competing purposes that are vital to economic growth and efficiency.