Consumer Price Index (CPI) and Trading Volume of the Nigerian Stock Market

Roseline O. Akintoye & Blessing Edeh, Volume 5 Issue 1, July 2024 Pages 113-119, Published: 2024-06-08

Abstract

The Nigerian Stock Market represents a vital component of the nation's economy, providing a platform for capital formation, investment, and wealth creation. As a developing economy, Nigeria is susceptible to various macroeconomic factors that influence its financial markets. One of such factor is inflation, as measured by the Consumer Price Index (CPI). Inflationary pressures can significantly impact investor sentiment, asset prices, and overall market activity. This study investigated inflation from a diagnostic perspective by opening up Consumer Price Index (CPI) so as to identify how the selected components of CPI affect the performance of the Nigerian Stock Market (NSM) in terms of its trading volume. The selected components of CPI include Communication (COMM); Education (EDU); Food and Non-alcoholic Beverages (FNAB); Transportation (TRANS); Health (HTH); and Housing, Water, Electricity & Gas (HWEG) while the Total Value of Shares Traded Ratio (TVSTR) was used to proxy for the trading volume of the NSM. The study adopted ex-post factor research design where data was sourced secondarily from the Central Bank of Nigeria (CBN) statistical bulletin and Nigeria Bureau of Statistics (NBS) for the period 2001-2020. Both descriptive and inferential statistics were adopted by the study. The study revealed that FNAB had a negative effect on TVSTR, TRANS, and COMM had a positive effect on TVSTR. However, the effect of EDU and HTH on TVSTR could not be ascertained in this study as their coefficients were insignificant. This implies that their contributions to the Total Value of Shares Traded Ratio may be largely attributable to chance. The study concluded that the selected components of CPI have a long-run effect on the trading volume of the NSM. It is therefore recommended that there is a need to probe sectors contributing negatively shares traded in the NSM so as to formulate strategies that will help mitigate the negative effect they have on NSM.