This study investigated the extent to which inflation illusion influences the market value of quoted firms in Nigeria. The analysis employed panel data obtained from the annual reports of 35 quoted firms and the Statistical Bulletin of the Central Bank of Nigeria for the period 2012–2021. Stock value was adopted as the dependent variable, while real inflation rate, core inflation rate, nominal yield, real cash flow, nominal interest rate, and money supply served as the explanatory variables. A panel-data analytical framework was applied, with the Fixed Effects Model employed as the principal estimation technique at the 5% significance level. Pooled, Fixed Effects, and Random Effects estimations were examined, and the Hausman specification test was applied to identify the most suitable model. The findings from Model One indicate that 88.3% of the variation in stock value is associated with variations in inflation illusion. The results further demonstrate that nominal yield and real inflation rate exert positive effects on stock value, whereas core inflation rate has a negative effect on the stock value of the quoted firms during the period investigated. Model Two reveals that 99.9% of the variation in stock value is attributable to the inflation-illusion variables specified in the regression model. The results also show that real cash flow and nominal interest rate have positive effects on stock value, while money supply exerts a negative effect over the study period. The study concludes that inflation illusion is a significant determinant of the market value of quoted firms in Nigeria. It therefore recommends that quoted firms place greater emphasis on enhancing market value when formulating investment policies, given the significant positive association between cash flow and corporate valuation. In addition, investment yield should be incorporated into investment decision-making with the objective of strengthening the valuation of firms quoted on the Nigerian stock exchange.

Keywords: Inflation Illusion, Market Valuation, Manufacturing Firms, Real Inflation Rate, Core Inflation Rate, Nominal Yield, Real Cash Flow, Normal Interest Rate, Money Supply.