The Effect of Inflation and GDP Trends on National Stock Market Returns in Nigeria
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Background of the Study
National stock market returns serve as a critical indicator of economic performance and investor sentiment. In Nigeria, macroeconomic variables—particularly inflation and GDP trends—play a central role in shaping stock market behavior. Inflation erodes the real value of returns, increases uncertainty, and can lead to erratic trading patterns, while steady GDP growth tends to bolster investor confidence and drive market expansion (Adeyemi, 2023). Recent policy reforms aimed at stabilizing inflation and fostering economic growth have been implemented to create a more predictable investment climate (Okoro, 2024). Empirical evidence suggests that fluctuations in inflation and GDP directly influence market liquidity, risk premiums, and overall stock performance (Balogun, 2025). Against this backdrop, the study investigates how variations in inflation and GDP trends correlate with changes in national stock market returns. The research considers both short-term market reactions and long-term investment patterns, highlighting the need for fiscal and monetary policy coordination to stabilize market performance. By analyzing historical data and recent trends, the study seeks to quantify the extent to which inflation dampens returns and GDP growth enhances market performance, thus providing valuable insights for policymakers and market participants.
Statement of the Problem
Despite efforts to stabilize the economy, Nigeria’s stock market remains volatile. High inflation rates, coupled with inconsistent GDP growth, have led to unpredictable market returns, deterring both domestic and foreign investors (Adeyemi, 2023). The lack of clarity on how these macroeconomic factors jointly affect stock market performance results in ineffective policy measures, limiting the market’s potential as an engine for economic growth (Okoro, 2024; Balogun, 2025).
Objectives of the Study
- To determine the impact of inflation on stock market returns.
- To assess the influence of GDP trends on market performance.
- To recommend policy interventions that stabilize stock market returns.
Research Questions
- How does inflation affect national stock market returns in Nigeria?
- What is the role of GDP trends in shaping stock market performance?
- Which policies can effectively mitigate volatility induced by these macroeconomic factors?
Research Hypotheses
- High inflation negatively impacts stock market returns.
- Positive GDP growth is associated with improved market performance.
- Effective policy coordination enhances stock market stability.
Significance of the Study
This study is significant as it elucidates the relationship between inflation, GDP trends, and stock market returns in Nigeria. The findings will help policymakers design strategies to reduce market volatility, attract investment, and enhance economic growth. Clear insights into these dynamics will benefit investors and contribute to a more stable financial market (Adeyemi, 2023; Okoro, 2024; Balogun, 2025).
Scope and Limitations of the Study
This study is limited to analyzing the influence of inflation and GDP trends on Nigeria’s national stock market returns. It focuses solely on macroeconomic indicators without accounting for external global market factors.
Definitions of Terms
• Inflation: The sustained increase in the general price level of goods and services.
• GDP Trends: The pattern of change in a country’s Gross Domestic Product over time.
• Stock Market Returns: The gains or losses generated by investments in the stock market.
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