This study examines the long-run and causal relationship between stock market performance and economic growth in Nigeria for the period from 1987Q1 to 2012Q4 ¬inclusive. The study employs the Augmented-Dickey Fuller test for unit root, the Johansen (1995) Maximum Likelihood cointegration technique and Vector Error Correction Model framework to capture long-run and short-run relationships in the cointegrating vectors of Nigerian stock market and economic growth. The study further employs Granger (1969) Causality, Impulse Response Function (IRF) and Forecast Error Variance Decomposition (FEVD) to capture shocks transmission and AR root graph for stability. The optimum lag length was selected based on the Schwartz and Hannan-Quin information criteria. The results of the cointegration test confirm that there exists a long-run relationship between stock market performance and economic growth, while the causality test results suggest that stock market performance causes economic growth with feedback. The Impulse Response Function (IRF) and Forecast Error Variance Decomposition (FEVD) suggest that shocks from the stock market do not impede economic growth. Furthermore, the result of the AR root graph indicates that the Nigerian stock exchange market is not stable. Hence, the current reforms and policies going on in the Nigerian stock exchange should be sustained to boost investors’ confidence and participation.
The paper’s primary contribution is finding that the Nigerian stock market is not stable.
Abiodun, L.N. and O.O. Elisha, 2012. Stock prices, stock market operations and Nigerian economic growth: A granger causality modelling. Global Advanced Research Journal of Management and Business Studies, 1(10): 375–383.
Adefeso, H.A., T. Egbetunde and I. Alley, 2013. Stock market development and growth in Nigeria; A causal analysis. Arabian Journal of Business and Management Review, 2.
Adenuga, A.O., 2010. Stock market development indicators and economic growth in Nigeria (1990-2009), Empirical investigations. Central Bank of Nigeria, Economic and Financial Review, 48(1): 33-70.
Alajekwu, U.B. and A.A. Achugbu, 2012. The role of stock market development on economic growth in Nigeria: A time series analysis. African Research Review, 6(24): 51–70.
Atoyebi, K.O., I.B. Ademola, I.K. Kadiri, O.F. Adekunjo and O.M. Ogundeji, 2013. Capital market and economic growth in Nigeria an empirical analysis. Journal of Humanities and Social Sciences 6(6): 60-68.
Bayar, Y., A. Kaya and M. Yildirim, 2014. Effects of stock market development on economic growth: Evidence from Turkey. International Journal of Financial Research, 5(1).
Carporale, G.M., P. Howells and A.M. Soliman, 2004. Stock market development and economic growth the causal linkage. Journal of Economic Development, 29(1).
David-Wayas, W.O.M., 2014. Causal relationship between stock market performance and economic growth in Nigeria. Innovare Journal of Social Sciences, 2(1).
Demirgüc-Kunt, A. and R.R. Levine, 1996. Stock market development and financial intermediaries: Stylized facts. World Bank Economic Review.
Donwa, P. and J. Odia, 2010. An empirical analysis of the impact of the Nigerian capital market on her socio-economic development. Journal of Social Sciences, 42(2).
El-Wassal, A.K., 2005. Understanding the growth in emerging stock markets. Journal of Emerging Market Finance, 4(3): 227-261.
Garcia, F.V. and L. Liu, 1999. Macroeconomic determinants of stock market development. Journal of Applied Economics, 2(1): 29 – 59.
Granger, C.W.J., 1969. Investigating causal relations by econometric models and cross spectral methods. Econometrica, 37: 424-438.
Henry, O. and E.O. Olabanji, 2013. Stock market performance and sustainable economic growth in Nigeria: A bound testing cointegration approach. Journal of Sustainable Development, 6(8).
Johansen, S., 1995. Likelihood-based inference in cointegrated vector autoregressive models. New York: Oxford University Press.
Kalapo, F.T. and A.O. Adaramola, 2012. The impact of the Nigerian capital market on economic growth (1990-2010). International Journal of Developing Societies 1(1): 11–19.
Mordi, C.N.O., 2008. Introduction to vector autoregressive (VAR) models. A Paper Presented to Staff of the Research Department of the Central Bank of Nigeria, Abuja, September.
N?zue?, F.F., 2006. Stock market development and economic growth: Evidence from Côte D’Ivoire. African Development Review, 18(1).
Ogboi, C. and S.O. Oladipo, 2012. Stock market and economic growth: The Nigerian experience. Research Journal of Finance and Accounting, 3(4).
Ojo, O.M. and S.O. Adeusi, 2012. Impact of capital market reforms in economic growth: The Nigerian experience. Australian Journal of Business and Management Research, 2(2).
Oluitan, R., 2013. The impact of capital market in the development of Nigeria economy. Research Journal in Organizational Psychology and Educational Studies, 2(5): 267-270.
Oluwatonyin, S.K. and M.C. Ocheja, 2009. The impact of stock market earnings on Nigerian per capita income. African Journal of Accounting, Economics, Finance and Banking Research, 5(5).
Olweny, T.O. and D. Kimani, 2011. Stock market performance and economic growth, empirical evidence from Kenya using causality test approach. Advances in Management and Applied Economics, 1(3): 153–196.
Osisanwo, B.G. and A.A. Atanda, 2012. Determinants of stock market returns in Nigeria: A time series analysis. African Journal of Scientific Research, 9(1).
Ozurumba, B.A. and E.E. Chigbu, 2013. An econometric analysis of capital market performance and economic growth of Nigeria. Interdisciplinary Journal of Contemporary Research in Business, 4(10).
Samuel, S.E. and R.U. Oka, 2010. Efficiency of the Nigerian capital market: Implications for investment analysis and performance. Translational Corporations Review, 2(1): 42-51.
Sanusi, L.S., 2010. Global financial meltdown and the reforms in the Nigerian banking sector. Being the full text of a public lecture delivered at the convocation square. Bauchi: Abubak Tafawa Balewa University.
Yartey, C.A., 2007. Macroeconomic and institutional determinants of stock market development in Africa. In Okpara, John, edi., Management and economic development in Sub-Saharan Africa: Theoretical and applied perspectives. London: Adonis and Abbey Publishers.