Effect of Economic Policy Uncertainty on the Nigerian Stock Market

Abstract

Nigeria has witnessed several uncertainty inducing events, especially in the period following the 2008-2009 Global Financial Crisis. Thus, this study investigated the effect of economic policy uncertainty on the Nigerian stock market over the quarterly period of 1997Q1 to 2019Q4. The study used the autoregressive distributed lag framework and found that: there is a stable long-run relationship between economic policy uncertainty and the all share index of the Nigerian Stock Exchange (NSE); and that economic policy uncertainty impacts significantly and adversely on the all share index of the NSE. Even when these findings were subjected to robustness checks using the NSE market capitalization, they remained consistent. Fluctuations in oil price and depreciations in the naira to U.S. dollar exchange rate were also found to impact adversely on the stock market. Overall, the study concludes that the Nigerian stock market requires a more certain and investment-friendly environment to thrive.