Impact of exchange rate and political stability on stock market performance in Nigeria

Abstract

This study investigates the impact of exchange rate fluctuations and political stability on stock market performance in Nigeria, a critical aspect for policymakers and investors in the context of the country's economic landscape. Utilizing a comprehensive dataset from 1994 to 2023, the research employs an ex-post facto design to analyze historical data and identify correlations among key variables. The findings reveal that stable exchange rates positively influence stock market performance by enhancing investor confidence and market liquidity. Conversely, political instability is shown to adversely affect market outcomes, leading to diminished investor sentiment and increased volatility. The study underscores the necessity for effective policies aimed at stabilizing these two factors to foster a more robust stock market and facilitate economic growth.  Recommendations include fostering a stable political environment through the efforts of policy-makers and government officials by promoting democratic governance, adherence to rule of law, ensuring political accountability and reduce corruption, furthermore, ensuring policies that appreciate exchange rate by the central bank of Nigeria is crucial, this can be done through intervention strategies in foreign exchange markets and collaboration with financial institutions.