Impact of Monetary Policy on Stock Portfolio Volatility

Abstract

This paper examines how the announcement of the monetary policy by the Central Bank of Nigeria (CBN) can affect the volatility of stock portfolios in the Nigerian capital market between 2015 and 2024. The study uses an event-study framework combined with a GARCH(1,1) volatility model to investigate the dynamic risk characteristics of equity portfolios as a consequence of volatility and variation of important parameters of monetary policy such as Monetary Policy Rate (MPR), Cash Reserve Ratio (CRR) and Liquidity Ratio (LR).. The results pinpoint the existence of volatility clustering in the returns of the Nigerian equity market and emphasize the robustness of the market to not only the direct policy indicators but also the general economic state. The present research can be seen as a contribution to the knowledge of monetary policy transmission modes in the emerging markets and provide practical implications to investors and policymakers that seek to improve their portfolio risk outcomes and maintain financial markets stable. The recommendations made are to increase the clarity of policy communication, increase market liquidity, and the intervention of macroeconomic factors of the risk assessment model