|
Abstract:
Macroeconomic variables have systematic effects on stock market performance because asset prices depend on their exposure to the fundamental variables describing the economy. Any systematic variable that affects the economy at the same time affects the return of a single stock, and consequently the stock market return as a whole. Therefore, this study examines the effect of political risk on stock market return and volatility in Nigeria. The study employed causal research design and the population of the study consists of all the one hundred and eighty four companies listed in the Nigerian Stock Exchange as at 31st December, 2018. The sample of the study covers the period of thirty-four years from 1985 to 2018. Data were collected through secondary sources of Central Bank of Nigeria Statistical Bulletin, Securities and exchange commission and World Bank Data Indicator. Generalised Autoregressive Conditional Heteroscedasticity (GARCH) was used to analyse the data. Findings revealed that political risk has effect on stock market return and volatility but, this effect was found to be insignificant. Also, the study found that political risk has linear relationship with the stock market returns and volatility. This implies that political risk affect stock market returns the same way as it affect stock market volatility. The study partially conform with arbitrage theory which postulate that political risk is one of the fundamental macroeconomic variables which constitute new information on the stock market return and volatility. The study concludes based on the findings that political risk has effect on stock market return and volatility. In view of this, the study recommends that Government should formulate policies that will promote greater performance of stock market in terms of increase in stock return and decrease in stock market volatility
|
