Main Article Content
Abstract
This study investigates the impact of economic policy uncertainty and macroeconomic instability (volatility) on stock market behaviour (returns, liquidity and volatility) using monthly data collected from Central Bank of Nigeria statistical database, Nigeria Exchange Limited database and World uncertainty database covering April 2016 to July 2022. Macroeconomic volatility and stock market volatility were detected using GARCH (1,1). The autoregressive distributive lag model was used for the study. This study found that economic policy uncertainty positively and significantly impacts stock market returns, stock market liquidity, while its effect on volatility is significantly negative. Macroeconomic volatility (exchange rate volatility) significantly and positively determines stock market returns and market liquidity, but its impact on market volatility is negative but insignificant. This study also found that stock market volatility positively and significantly accounts for stock market returns and market liquidity. This study recommends that the Security and Exchange Commission (SEC) should initiate policy targeted at boosting market liquidity and strengthening the stock market resilience against shocks associated with economic policy changes, while the Central Bank of Nigeria should intensify the current economic policy, especially exchange rate policy aimed at stabilizing the macro-economy because of the positive impact on stock market returns and liquidity