This study examines the effect of macroeconomic variables—inflation, interest rates, and exchange rates—on stock market returns in Nigeria over the period January 2003 to December 2023, using monthly time series data from 252 observations. Controlling for global conditions, domestic economic activity, market-specific liquidity, institutional quality, and policy environment, the study employs Ordinary Least Squares (OLS) estimation with Newey-West heteroscedasticity and autocorrelation consistent (HAC) standard errors. Results reveal that inflation (β = −0.0187, p < 0.001), interest rates (β = −0.0214, p < 0.001), and exchange rate depreciation (β = −0.0002, p < 0.001) each exert statistically significant negative effects on stock market returns, collectively explaining 64.23% of return variance (Adjusted R² = 0.6301). These findings support the Fama (1981) proxy hypothesis over the traditional Fisher inflation-hedge proposition and confirm the discount rate channel of monetary policy transmission. All five control variables exhibit positive and significant effects, underscoring the multidimensional determinants of equity performance in a frontier market context. Post-estimation diagnostics confirm model robustness, parameter stability, and the absence of heteroscedasticity, serial correlation, and multicollinearity. The study contributes novel empirical evidence for Nigeria's capital market and offers actionable policy recommendations for the Central Bank of Nigeria, fiscal authorities, and market regulators aimed at enhancing macroeconomic stability and capital market development.
Onipe Adabenege Yahaya (2026) studied this question.