Inflation Rate and Stock Returns: Evidence from the Nigerian Stock Market.

This study examined the impact of inflation rate on stock returns in the Nigerian Stock Market. It also attempted to determine whether inflation rate had any effect on stock returns in Nigerian stock market and to ascertain whether stock prices effectively predict stock returns in the Nigerian stock market, using monthly data covering the period 1995 to 2010. Secondary data were extracted from the Nigerian Stock Exchange Fact Book and the Central Bank of Nigerian Statistical Bulletin. The result indicates that the inflation rate has a negative but weak impact on stock return; hence, inflation is not a strong predictor of stock returns in Nigeria. Inflation variable appears to significantly respond to stock price changes. Caution should be exercised in interpreting this, particularly as it may not suggest that stock prices determines inflation or that inflation be anchored on the activities in the stock market in the course of policy perspective. The study recommended that the government should ensure inflation stabilization and appropriate tax administration that takes into cognizance the technical patterns of stock market activities and that monetary policies should be aimed at finding a more realistic price level that will be beneficial to investors in the Nigerian stock market.