International Journal of Research and Innovation in Social Science (IJRISS) |Volume IV, Issue VI, June 2020|ISSN 2454-6186 www.rsisinternational.org Page 556 Monetary Policy and Stock Market Performance: Evidence from Nigeria Stock Exchange Market Justin .C. Alugbuo 1 , Ekwugha Juliet Chika 2 1 (Lecturer), Department of Economics, College of Management Sciences (COLMAS), Michael Okpara University of Agriculture, Umudike, Umuahia, Abia State, Nigeria 2 (PhD Student), Department of Economics, Faculty of Social Sciences, Imo State University, Owerri, Imo State, Nigeria Abstract: - There have been controversies among scholars, researchers and finance professionals with regards to what triggers the movement in the stock prices from their fundamental value and it has generated questions that led to efforts to find out if monetary policy instruments affect stock market performance in Nigeria. Is it against this backdrop, that this study investigated the effect of monetary policy on stock market performance in Nigeria for the period 1981-2018. The specified model of the study was estimated using the ARDL model to determine the level of impact that one variable has on the other. While E-views 10 statistical software was employed in computing the result, time series data were obtained from World Bank national accounts data and OECD National Accounts data files and the study established that Lending interest rate had a positive relationship with all share index and also was statistically significant in the current year while Money supply had a negative relationship with ASI in the current year and in the previous lags i.e 1st, 2nd and 3rd years lag periods in the short run period but was found to have a positive relationship with All Share Index in the long run and was statistically significant at 5% level of significance, Consumer Price Index (CNPI) had a negative relationship with LASI in the current and in the 1st years lag periods and finally, Treasury Bill Rate (TRBR) had a negative relationship and significant impact on ASI in the current year period but was also found to have a positive and strong impact on ASI in the 1st lag period, based on this, the study recommended that Central bankers and stock market participants should be aware of the relationship between monetary policy and stock market performance in order to better understand the effects of policy shifts. Monetary authorities in particular face the dilemma of whether to react to stock price movements, above and beyond the standard response to inflation and output developments. Keywords: Monetary Policy, All Share Index, Money Supply, Lending Interest Rate. I. BACKGROUND TO THE STUDYAND STATEMENT OF THE PROBLEM onetary policy according to Anyanwu (2013) involves a deliberate effort by the monetary authorities to control the money supply and credit conditions for the purpose of the achieving a certain broad economic objectives. It can also be describes as the art of controlling the direction and movement of credit facilities for the pursuance of stable price and economic growth in an economy (Chowdhury, Hoffman and Schubert, 2003). But differently monetary policy refer to as the action of central bank to regulate the money supply which could be through discretionary monetary policy instruments such as open market operation (OMO), discount rate, reserve requirements, moral suasion, direct control of banking system credit and direct regulation of interest rate (Loayza and Schmidt-Hebbel, 2002). Monetary authorities however, use different instruments to effect policies on the various transmission channels. A monetary policy that is aimed at interest rate control may be either direct or indirect. When it is direct, it is specifically applied to the portfolio or balance sheet of banks in the financial system using selective credit control, stabilization securities, and administered interest rates etc. An indirect monetary policy regime uses market determined instruments such as open market operations, variable rediscount rate and reserve requirements. A monetary policy framework that has its target at either the consumer price index or producer price index is aimed at inflation. On the other hand, the credit channel of transmission is directed at credit availability through debt or equity market. The credit channel is merely an amplifying mechanism and not independent of the interest rate channel (Bernanke and Gertler, 2005). Nonetheless, in Nigeria, monetary policy has been known to be transmitted through the liquidity channel, credit channel and exchange rate channel (Uchendu 2016). Uchendu (2016), observed that when direct controls were relaxed as part of the Structural Adjustment Program (SAP) of 1986, the inter-bank market rates became a source of monetary policy transmission in Nigeria. He further observed that credit availability also influenced the lending behavior of credit market during the period. A major shift in monetary policy formulation in Nigeria came on the heels of SAP as a measure to liberalize the financial system and subsequent opening up of the capital market to foreign participation. M