IMPACT OF CENTRAL BANK COMMUNICATIONS ON STOCK PRICES IN NIGERIA
IMPACT OF CENTRAL BANK COMMUNICATIONS ON STOCK PRICES IN NIGERIA
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Date
2012-11
Authors
UMAR, SALISU
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Abstract
A significant transition towards greater Central Bank transparency occurred in the last
two decades. As a result, a number of Central Banks both in advanced and advancing
economies communicate most aspect of their monetary policy with the aim of influencing
agents’ decision for the effectiveness of monetary policy actions. It is however noted that
the signals inherent in Central Bank communication instead of coordinating agents’
expectation towards fundamentals, it sometimes coordinate it away. This study assessed
the impact of communication by Central Bank of Nigeria (CBN) on stock prices in the
Nigerian stock market from 2007 to 2011. Five day weekly data on the Nigerian Stock
Exchange (NSE) All Share Index (ASI) from January 4th, 2007 to June 30th 2011 and
Banking 10 Index(BINDEX) from February 2nd, 2009 to December 31st 2010 were
collected and used for the study. The econometric tool of analysis used was the
Exponential Generalized Autoregressive Conditional Heteroskedasticity (EGARCH)
model. It was found that CBN’s communication has significant impact on stock prices in
Nigeria and as well reduces volatility in the Nigerian stock market. Our findings also
suggest that CBN is transparent and credible. The study recommends that CBN should
cautiously use communication as viable tool of monetary policy to coordinate agents’
expectations and as a tool of managing stock price volatility in the Nigerian Stock
market.
Description
BEING A THESIS SUBMITTED TO THE POST GRADUATE SCHOOL,
AHMADU BELLO UNIVERSITY, ZARIA, IN PARTIAL FULFILLMENT
OF THE REQUIREMENTS FOR THE AWARD OF MASTER DEGREE
OF SCIENCE IN ECONOMICS
NOVEMBER 2012
Keywords
IMPACT,, CENTRAL BANK, COMMUNICATIONS, STOCK,, STOCK PRICES,, NIGERIA.