Abstract
The study examined specifically the impact of inflation on stock market performance at the
Nigerian Stock Exchange. The study used time series data for 21 year period; 1986-2006, to fill
this important research gap. The least square regression approach was used to estimate the
necessary models. The regression results showed that coefficient of inflation rate does not have
significant negative impact in explaining the long run performance of the stock market
performance indicators tested.
The result as well showed that the coefficient of inflation rate was
negative, implying that, though theoretically inflation did not have significant negative impact on
stock market performance indicators on the surface, but intrinsically considering the time value
of money, inflation actually depreciated the real worth of the market indicators. In view of the
above the following recommendations were made towards measures that can be used by the
government for achievement of low and predictable inflation in Nigeria. The measures are as
follows: Adoption of balanced budget by the government; Import substitution and
encouragement of domestic production; Enhancement of food production through extension of
credit facilities to agricultural sector as well as construction of silos for storage of excess produce
in order to avoid hoarding or scarcity of food items; Prevention of sharp practices through sound
management of the exchange rate of the naira; Implementation of measures to mope up excess
liquidity in the system that result from upward review of workers salary; Earnest pursuance of
stable macro-economic environment devoid of political turbulence and instability; Granting of
total autonomy to the Central Bank in the formulation and implementation of monetary policies;
and encouragement of massive industrialization for improved industrial output in order to
facilitate appreciation of the naira in the international market.
