MONEY SUPPLY AND STOCK MARKET PRICES IN NIGERIA

This study examined the effect of money supply on stock market prices in Nigeria between 1990 and 2023. The objectives of the study were to determine the extent to which broad money supply (M2), monetary policy rate, liquidity ratio and cash reserve ratio have affected All-Share Index (ALSI) in the Nigerian stock market. Data on the aforementioned variables were collected from Central Bank of Nigeria (CBN) statistical bulletin for various years. Adopting the Autoregressive Distributed Lag (ARDL) approach to data analysis, the study revealed that lagged ALSI and monetary policy rate have direct effects on current period ALSI while cash reserve ratio, liquidity ratio and money supply (M2) have inverse influences on current period ALSI. However, lagged ALSI, cash reserve ratio and liquidity ratio were statistically significant. The study further revealed a long run relationship between the variables with an adjustment capacity of about 58.5% in event of disequilibrium per annum. The study thus concluded that money supply has a negative insignificant effect on stock market prices in Nigeria. On this backdrop it was suggested amongst other things that drastic measures should be adopted in order to ensure that the volume of money outside the banking system is significantly reduced in order for monetary policies to be more effective in Nigeria. Secondly, deposit money banks should be encouraged to offer competitive deposit rates that will attract more funds into the banking system. Thirdly, there is need for the Central Bank of Nigeria to offer better and competitive rates for treasury bills and other money market instruments in order to keep funds in the banking system