THE IMPACT OF MONETARY POLICY ON RISK ASSET RETURNS: EVIDENCE FROM TIER ONE NIGERIAN BANKS

This study investigates the effect of monetary policy on the returns of risk assets, focusing on Tier One banks in Nigeria, specifically EcoBank and First Bank of Nigeria, over the period 1986–2014. The study employs a Vector Autoregressive (VAR) model to analyze multivariate time series data. Variables considered include inflation rate, real interest rate, Treasury bill rate, loan-to-deposit rate for both banks, and returns on assets. Findings reveal that the Treasury bill rate is the only statistically significant variable, and the regression indicates that the independent variables explain approximately 50% of the variations in the returns on assets. The estimated parameters were largely insignificant, suggesting that monetary policy has a partial effect on the returns of Tier One banks, likely due to credibility and implementation challenges within the Nigerian monetary policy framework. The study recommends that the Monetary Policy Committee (MPC) enforce policies more effectively to enhance control over the financial sector, a key driver of economic growth, and achieve its set objectives