Noble International Journal of Economics and Financial Research

Online ISSN: 2519-9730 | Print ISSN: 2523-0565


    Volume 4 Number 2 February 2019


Pages: 10-18
Authors: Acha, Ikechukwu A., Akpan, Sunny Okon
This study examines the causal relationship between stock market performance and economic growth in Nigeria for the period 1987 -2014, using annual secondary data. Economic growth is proxied by gross domestic product (GDP) while capital market performance is measured by market capitalization, total new issues, volume of transaction and listed equities. The objective is to empirically analyze, using link between capital market performance and economic growth (i.e. whether stock market performance causes economic growth or itself is a consequence of increased economic activity). The investigation of the causal relationship was conducted using Granger causality test based on the Vector Autoregressive (VAR) model. The statistical techniques used include the unit root Augmented Dickey Fuller test in order to test for stationarity for all the time series in their levels and first differences. The Johansen co-integration test was used to investigate whether the variables are cointegrated of the same order taking into account the trace statistics and the maximum eigen-value tests. The variables were found to be cointegrated with at least one co-integrating vector. The findings imply that the causality between economic growth and capital market runs unilaterally from the capital market performance indicators to the GDP. From the results, it was inferred that the movement of stock prices in the Nigeria Stock Exchange reflect the macroeconomic conditions of the country and can therefore be used to predict the future path of economic growth. The study shows that the capital market performance has positively and significantly impacted on the Nigerian economy within the period of the study (1987- 2014). The study therefore, recommends among others that the financial and monetary authorities should ensure free flow of information in the market. This is necessary in order to attract more investors and increase new issues which will automatically increase the quantum of market capitalization that will result in improving the performance of the Nigerian capital market and by extension the economy.

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