The sudden announcement of fuel subsidy removal by the Federal Government of Nigeria on the 11th of May, 2016 in Nigeria generated a lot of arguments and several reactions among observers and market analysts as to the likely consequences of such an action to the Nigerian economy on the market value of listed firms. This study aims to empirically investigate the reaction of the Nigerian stock market to the sudden announcement of the removal of fuel subsidy. Data of the study was collected from the Nigerian Stock Exchange daily official list covering both the estimation period and the event window. The standard event study methodology was used on a sample of 76 firms that cut across all the various sectors of listed firms in the Nigerian Stock Exchange. The study found the event to have a significantly positive impact on the stock market as positive cumulative abnormal returns were recorded in the market before the announcement of the fuel subsidy removal, on the event day and a negative significantly cumulative abnormal return after the announcement. Due to the findings, this study recommends, among other things, that policy makers should avoid sudden announcement of policies that bothers on sensitive sectors of the economy. Such actions should be preceded by the release of information that adequately justifies such action by policymakers before it is made public. The release of such information is useful as it will help the stock market to correctly interpret the philosophy underlying the action by policy makers and will further drastically reduce information asymmetry in the market.

Keywords: Subsidy removal, stock market, event study, cumulative abnormal returns.