CHAPTER ONE
INTRODUCTION
1.1 Background of the Study
The stock market is a common feature of a modern economy and it is reputed to perform functions that promote the growth and development of the economy. The market is an economic institution; which promotes efficiency in capital formation and allocation. It enables governments and industry to raise long-term capital for financing new projects, and expanding and modernizing industrial and commercial concerns. Investment in the stock market is long term in nature; hence any development that could affect the stability of the polity or economy usually has serious impact on the performance of the stock market. Corrado and Jordan (2002) identify inflationary rate amongst others as a factor that could influence the market performance.
Economists have long recognized inflation as one of the major factors that could derail the economy of any country. In Nigeria, the problem of inflation has caused the monetary authority to seek remedies on a continual basis. Therefore, studying the impact of macroeconomic factors such as the rate of inflation on stock market performance has implications for investors and policy makers. The stock market performance influences the performance of the economy vice versa.
According to Alile (1997), the central objective of the stock exchange worldwide remains the maintenance of the efficient market with attendant benefit of economic growth. In recent times there was a growing concern on the role of stock market in economic growth (Levine and Zervos, 1996; Demirguc-Kunt and Levine, 1996; Oyejide, 1994; Nyong, 1997; Obadan, 1998; Onosode, 1998; Emenuga, 1998; Osinubi, 1998). The stock market is of interest to economists and policy makers because of the perceived benefits to the economy.The stock market serves as a veritable tool in the mobilization and allocation of savings among competing uses which are critical to the growth and efficiency of the economy.
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