An Analysis of the Interrelationship and Impact of Stockmarket, Micro and Macroeconomic Fundamentals on Stockpricing in Nigeria

Filed in Articles by on November 2, 2022

 – An Analysis of the Interrelationship and Impact of Stockmarket, Micro and Macroeconomic Fundamentals on Stockpricing in Nigeria – 

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Since the Dutch Tulip Mania of the 1630s, cycles of bubbles and bursts in stock markets have become commonplace across the world, hence, this has gained a reasonable academic attention. 

However answers as to what causes a particular market crash remains context-specific and in most cases, weakly related to the overall question of what causes stock market crash and how it can be prevented.

Consequently, the question of what causes a particular market crash remains context specific which has to be answered for all dips in the stock market.

Recently, Nigeria Capital Market took a plunge downwards in March 2008 after more than four years of consistent super performance. As is the case in many other African countries, thus far, explanations are hardly empirics supported.

As a result, specific drivers of the markets given the peculiarities of poor capitalization, weak underlying economic base and open capital accounts remain unexamined.

This study employs three approaches with two data sources – with two data sources – one primary and the other secondary to examine the relationship between Nigeria Stock market and economic fundamentals with a view to determining their impact on stock valuation.


The occurrence and existence of bubbles have gained reasonable academic attention (examples include, Froot and Obstfeld, 1992; Allen and Gorton, 1993; Biswanger, 1999; Chen, 1999; Abreu and Brunnermeier, 2003).

The existence of stock market bubbles and crashes dates back to the 1600s. The Dutch tulip mania of 1630’s, the South Sea bubble of 1719 – 1720 and more recently, the internet bubble, which peaked in early 2000, are some notorious cases (Abreu and Brunnermeier, 2003).

Time and again, both pundits and market makers have had difficulty correctly foreseeing the direction of the market even in the medium term.

For example, when on March 10, 2000, the technology-heavy NASDAQ composite peaked at 1 5, 048.62, very few expected what was to follow the next couple of months.

Even though such high movements were quite contrary to the trends in the rest of the economy, the fall still caught many analysts and stakeholders unprepared.

The bubble burst that followed (generally known as the dot-com bubble crash) wiped out about 2 $5 trillion in market value of technology companies between March 2000 and October 2002. 


Abreu, D and Brunnermeier, M. K. (2003), “Bubbles and Crashes”, Econometrica 71(1): 173 – 204

Allen F. and Gorton, G. (1993) “Churning Bubbles”, Review of Economic Studies 60, 813 – 836

Binswanger, M (1999), Stock Markets, Speculative Bubbles and Economic Growth,
Cheltenham: Edward Elgar Publishing.

Chen J. (1999) “When the bubble is going to burst…”, International Journal of Theoretical
and Applied Finance, 2(3): 285 – 292

Froot, K. and Obstfeld, M. (1992), “Intrinsic Bubbles: the Case of Stock Prices”, NBER
Working Paper Series, w3091: SSRN:  HYPERLINK

Nduwugwe, J. (2008), “Nigerian Economy may Reel under Financial Crisis”, Third World
Network-Africa (TWN-Af), December.

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