ANYANWU Cajetan Chinedu
Nasarawa State University Keffi
OHUROGU Davison Ukachukwu
Nasarawa State University Keffi
ABSTRACT
This study investigated effects of interest rate and money supply on stock market liquidity in Nigeria for the period 1985–2022. The study employed ex post facto research design. Secondary data extracted from Central Bank of Nigeria Statistical Bulletin and Nigerian Exchange Group Reports was used in the study. Vector Auto regression estimation technique with Variance Decomposition and Impulse Response Function were employed to analyze the data. Findings suggest that interest rate has a significant negative effect on stock market liquidity while money supply has significant positive effect on stock market liquidity in Nigeria. The study concludes that shock from interest rate reduces stock market liquidity, also, shock from money supply increases stock market liquidity, although, shock from money supply has more explanatory power on stock market liquidity in Nigeria. The study thus recommends that the Central Bank of Nigeria should reduce the interest rates in order to stimulate the stock market liquidity in Nigeria. Also, the Central Bank of Nigeria should control money supply, the Central Bank of Nigeria needs to explore other measures such as contractionary open market operation to mop-up excess liquidity where and when necessary.
Keywords: Interest rate, money supply, stock market liquidity, vector auto regression