EFFECT OF INTEREST RATE ON STOCK RETURNS OF DEPOSIT MONEY BANKS AND QUOTED FIRMS IN NIGERIA

Abstract

This study examined the impact of interest rates on the stock returns of deposit money banks and Nigerian quoted firms. Specifically, it examined the impact of interest rates on the stock returns of deposit money banks; examined the impact of interest rates on the stock returns of listed companies; assessed the causal relationship between interest rates and stock returns in Nigeria; and examined the impact of interest rates on the stock returns of listed companies and deposit money banks in Nigeria. The study evaluated monthly data from 1990M01-2024M12 from the Central Bank of Nigeria Statistical Bulletin using the VAR Granger Causality test, Generalised Autoregressive Conditional Heteroscedastic (GARCH), and Autoregressive Conditional Heteroscedastic (ARCH). Based on the sum of RESID and GARCH, it was discovered that the stock market return of deposit money banks and the aggregate stock return of enterprises were turbulent over a long period of time. Therefore, this study recommended that monetary authorities restrict their negative effects, establish interest rates in line with existing economic policies, and prevent most Nigerian banks from changing interest rates in a way that has never been done before.