Abstract:
Quantile regression is considered a methodological improvement and preferred to ordinary least
squares regression (OLS) because it can depict a more detailed picture of the relationship between
variables by estimating multiple slopes along the entire response distribution. In the study, quan-
tile regression estimation is used to investigate the significant effects of external reserves, exchange
rate and inflation rate on stock market index in Nigeria. The study revealed the violation of the
assumptions of normality, homoscedasticity and independence of regressors using normality curve,
time series plot plot and variance inflation factors (VIF) respectively, followed by the estimation of
quantile slopes and relative effectiveness of the model in explaining the data at each quantile. The
result of the study showed that all the regressors are related to stock market index and significant at
0.25th quantile while the external reserves only is positively related to stock market and statistically
significant at all quantile levels, also it mostly contributed to the explanation of the variation in stock
market index. The stock market index has been the tool used by investors to describe the market
and compare on specific investments, its determinants like the interest rate needs to be set right in
order to boost the performance of the stock market.
