The Impact of Monetary Policy on Stock Market Returns in Developing Markets, A Comparative Investigation of Nigeria and Ghana Stock Markets (1990 : 2010)

Abstract: The global economic meltdown which affected the stock markets all over the world also had an adverse effect on less developing countries stock markets. As a result of the meltdown, investors lost confidence in the stock market. Monetary authorities in both Nigeria and Ghana had tried in several ways to restore investor confidence and hence one of the major tools that government uses to achieve macroeconomic objective is monetary policy. There became a need to investigate how monetary policy changes affect stock market returns in the Nigerian and Ghanaian stock exchange markets. This paper is based on comparative study of Nigerian and Ghanaian stock markets in other to ascertain how monetary policy targets namely interest rate and money supply (m2) affect stock market returns. We conducted a simple regression analysis test based on annual 20 year data (1990-2010). The result shows that monetary policy has more impact on stock market returns in the Ghanaian economy than the Nigerian economy, and as such could act as a market signal for investors in the Ghanaian stock exchange market. While the Nigerian stock exchange market is insensitive to change in monetary policy as such, a change in monetary policy would not act as a market signal for investors in the Nigerian stock exchange market.