Abstract:

Stock market volatility is not only influenced by macroeconomic factors but non-macroeconomic factors also have a significant impact on stock market volatility. The study examined the non-macroeconomic factors that drive stock market volatility in the Nigerian economy for the period of 1985 to 2016 using Vector Error Correction model (VECM).The Granger causality test revealed that a unidirectional causality runs from interest rate to stock market price volatility and from number of listed firms to stock market volatility. Average education level of investor was also found to granger cause gross domestic product. The VECM confirmed a long run relationship among stock market volatility, gross domestic product, interest rate, average education level of investors and the number of listed firms. The study further applied the impulse response function (IRF) and the Variance decomposition (VD) to analyse the dynamic component of the VECM model. The study established that the average education level of investors had a positive influence on stock market price volatility. However gross domestic product, interest rate and the number of listed firms were found to decline in response to positive shock on stock market price volatility. It was established that interest rate had a positive impact on stock market volatility. Average education level of investors was also found to have an increasing effect on stock market price volatility. Gross domestic product was however found to have a decreasing impact on stock market price volatility in the long run. The findings of this study are useful for policy makers especially in creating awareness about the crucial impact of non-macroeconomic factors on stock market volatility in the Nigerian economy. The study recommended financial literacy of investors as it has the potential of boosting investment in the stock market. Investors are also encouraged to get their business listed on the stock exchange to improve diversification and stability in the stock market.