MACROECONOMIC VOLATILITY, INTEREST RATE DIFFERENTIALS, AND STOCK MARKET LIQUIDITY: COMPARATIVE EVIDENCE FROM NIGERIA AND SOUTH AFRICA (1984–2022)

The study sought to explore the effects of macroeconomic volatility and interest rate differential on stock market liquidity in Nigeria and South Africa from 1984 to 2022.The gross domestic product and Interest rate differentials were used as explained variables, while the money supply and exchange rate served as explanatory variables. The base year (1984) was marked by Food and Agricultural Organization (FAO)Launched by the United Nations to assist in alleviating famine in Africa. A population of 54 countries in Sub-Sahara Africa was sampled, while two countries were selected based on the volume of their market transactions over the years under study. We carried out stationarity test, co-integration test, parameter stability test, arch effect and OLS. Findings indicated that (i) Macroeconomic volatility have a positive and significance effect on the stock market liquidity in Nigeria, while in South Africa, Macroeconomic volatility have positive and non-significance effect on the stock market liquidity .(ii) Interest rate have a negative and non-significance effect on the stock market liquidity in South Africa and Nigeria .It was recommended that government need to enact sound monetary policies in order to enhance economic growth in both countries under study. The government will also need to benchmark for best practices in monetary policy development from those economies that are more advanced in order to develop better monetary policies that can improve the performance of the stock market. (ii)The government need to create an enabling environment and promote infrastructural development to facilitate the ease of stock market activities in particular and financial system of both countries.