A major engine of economic growth and development of any nation is
the stock market. It impacts positively on the economy by providing
financial resources through its intermediation process for financing long
term projects. These projects could be promoted by governments or
private institutions. The analysis scope covered a period of twenty-five
years spanning from 1986-2010. The econometric methodology
adopted is the Ordinary Least square method (OLS). Using the
independent variables of market capitalization, value of trade, inflation
rate and exchange rate and the dependent variable of gross domestic
product, this study analyzes the impact of the stock market on the
Nigerian economy. In conclusion, the result shows that the stock market
has a highly significant impact on the Nigerian economy. Hence,
without an efficient stock market, the economy may be starved of the
required long term fundsfor sustainable growth and development.
TABLE OF CONTENT
TITLE PAGE – – – – – – – – – – – – – – – – – – – – – – – – – i
APRROVAL PAGE – – – – – – – – – – – – – – – – – – – – – – ii
DEDICATION – – – – – – – – – – – – – – – – – – – – – – – – – iii
AKNOWLEDGEMENT – – – – – – – – – – – – – – – – – – – – iv
TABLE OF CONTENT vi
1.1 Background of the study
1.2 Statement of the problem
1.3 Objective of the study
1.4 Statement of hypothesis
1.5 Significance of the study
1.6 Scope and limitation of the study
2.0 LITERATURE REVIEW
2.1 Theoretical literature
2.1.1 History of the Nigerian stock market
2.1.2 The Nigerian security and exchange commission
2.1.3 An overview of the Nigerian stock market
2.1.4 The impact of the stock market on the Nigerian economy
2.2 Empirical literature
2.3 Limitations of previous studies
3.0 RESEARCH METHODOLOGY
3.1 Model Specifications
3.2 Technique for evaluation of results
3.3 Justification of the model
3.4 Sources of data for the study
4.0 RESULT PRESENTATION AND INTERPRETATION
4.1 Economic Apriori Criteria
4.2 Statistical Criteria (first order test)
4.2.1 Coefficient of multiple Determination (R2
4.2.2 The Students T-Test
4.2.3 F Statistics
4.3 Econometric criteria
4.3.1 Test for Autocorrelation
4.3.3 Test for Heterocedasticity
4.3.4 Test for Multicollinearity
5.0 SUMMARY OF FINDINGS, POLICY RECOMMENDATIONS AND
5.1 Summary of findings
5.2 Policy recommendations
1.1 BACKGROUND OF THE STUDY
The stock market is supposed to play an important role in the
economy in the sense that it mobilizes domestic resources and
channels them to productive investments. However, to perform this
role it must have significant relationship with the economy.
The development of stock market in Nigeria, as in other developing
countries has been induced by the government. Though prior to the
establishment of stock market in Nigeria, there existed some less
formal market arrangement for the operations of the stock market. It
was not prominent until the visit of Mr. J.B. Lobynesion in 1959, on the
invitation of the federal government, to advice on the role the central
bank could play in the development of the local money and stock
market. As a follow-up to this, the government commissioned and set
up a Barback committee to study and make recommendations on the
ways and means of establishing a stock market in Nigeria as a formal
market. (Alile and Anao 1990)
Capital markets are key elements of a modern market-based
economic system as they serve as the channel for flow of resources
from the SAVERS of capital to the BORROWERS of capital. Efficient
capital markets are hence essential for economic growth and
prosperity. With growing globalization of economies, the international
capital markets are also becoming increasingly integrated. While such
integration is positive for global economic growth, the downside risk is
the contagion effect of financial crisis especially if itsorigin lies in the
As for the effect of macroeconomic variables such as money supply
and interest rate on stock prices, the efficient market hypothesis
suggests that competition among the profit maximizing investor’s
impact of macroeconomics. Variables on stock market will ensure that
all the relevant information currently known about changes in
macroeconomics variables are fully reflected in current stock market,
so thatinvestors will not be able to earn abnormal profit through
prediction of the future stock markets investments. (Chong and Koh
Therefore, since investment advisors would not be able to help
investors earn above average returns consistently except through
access to employer insider information.
Stock market is a critical log in the wheel that smoothens the
transfer of funds for economic growth. Broadly speaking, stock
exchanges are expected to accelerate economic growth by increasing
liquidity of financial assets, making global diversification easier for
investors and promoting wiser investment decisions. In principle, a well
functioning stock market may help the economic growth and
development process in an economy through growth of savings,
efficient allocation of investment resources and alluring of foreign
portfolio investments. The stock market encourages savings by
providing the household having investable funds, an additional financial
instruments which meets their risk preferences and liquidity needs
better, it in fact provides individuals with relatively liquid means for risk
sharing in investments projects.(Agrawalla 2006).
The stock markets capacity to contribute to the development of
the economy has been largely impaired by various inadequacies. The
market over the years have been characterized by-Lack of depth with
few securities-poor liquidity, partly due to inefficiency-Poor
infrastructural for secondary market operations-Basically, an equity
market with largely dormant bond market-High transaction costs-Lack
of sophisticated product investments and instruments. The market is
mainly dominated by traditional instruments such as BONDS and
EQUITIES with limited derivatives-Unfavorable tax regime-Unstable and
largely in appropriatein macro-economic environment.
1.2 STATEMENT OF THE PROBLEM
InNigeria, the capital markets have over the years been performing its
traditional role. However, its efficiency and effectiveness in this regard
have been greatly limited by various factors notable among which are
price level and the structure of the economy, which is dominated by oil
production, yet, the oil producingcompanies are listed on the stock
market, the lack of long term capital in the business, the business
sector depends mainly on short-term financing such as overdrafts to
finance even long term-capital. The economic reforms of the federal
government particularly those that have taken place in the financial
sector are therefore intended among other objectives to attain. The
focus of this paper is to examine stock market and it’s impact on the
As a result of the above, the market has therefore not been in the
best position to contribute maximally to economic growth and the real
sector. These inadequacies have made the reforms that have taken
place over the years imperative. Recent reforms in stock market with
the enactments of the Investments and SecurityAct (ISA) no 45 of 1999
which replaced the SEC degree of 1986. Other reformsthat have been
taken place in the stock market include:
-Review of minimum capital requirement for operators.
-Reduction of transaction costs.
-Introduction of code of corporate governance.
-Reactivation of the Bond market.
-Introduction of market makers.
-Introduction of self registration.
-Development of a commodity market.
Many emerging stock markets are being restricted by lot complaints
which impede the realization of capital market serving as a catalyst for
economic growth. Such problems include:
A.Unquoted companies: Many companies are not quoted because of
perceived loss of control. They are afraid of sharing the ownership of
the company with others and because of this reason they prefer to
restrict themselves to funds provided by family members and friends
and are therefore unable to unanticipated challenges in a timely
B. Domination of public sector: The dominance of public
sector like government s has greatly hindered the capital market
growth as many them are yet to be privatized(especially the public
utilities)that can deepen the market almost immediately.
C. A lot of sharp practices exist in the flow of the exchange
fostering improper disclosure of information, unfairpricing, insider
Currently, the performance of the Nigerian stock market during the
last month rallied 118 points or 7.3%. from 2013, the Nigerian stock
market average 1106 index points reaching an all time-high of 1718
index point in may 2013 and a record of 848 index points (NSE 30).
This rise and fall of the Nigerian stock market index point has resulted
in the slow meltdown of the capital market. This meltdown of the
capital market could result in unbalances on the economy.
According to the NSE report the process of this rise and fall began
in January 2007 as the capital market nose-dived from all time high of
₦13.5 trillion to less than ₦4.6 trillion by the second week of January.
The all share index has also plummeted from abroad 66,000 basis
points to less than 22,000 points in the same period. It has also
experienced a free for all downward movement with more than 60%
of 300 quoted stocks. Consequently, many of the quoted stocks lack
liquidity as their holders are trapped, not able to convert to cash to
meet their domestic needs thereby creating a major problem. When
this occurs, stockholders begin to withdraw and foreign investments
are lost and this results to a negative developmenton the Nigerian
1.3 OBJECTIVES OF THE STUDY
The central objective of this study is to analyze the economic
impact of stock market on Nigerian economy. The specific objectives
1. To examine the relationship between stock market and
Nigeria’sgross domestic product.
2. To assess the level of stock market stability in Nigeria.
3. To appraise the performance of the Nigerian stock market.
4. To make policy recommendations at the end of this study.
1.4 RESEARCH HYPOTHESIS
The research work is guided by the following hypothesis.
1. Ho: There is no significant relationship between stock market and
Nigeria’s gross domestic product.
H1: There is a significant relationship between stock market and
Nigeria’s gross domestic product.
2. Ho: Stock market does not have economic impact on the Nigerian
H1: Stock market has economic impacts on the Nigerian economy.
1.5 SIGNIFICANCE OF THE STUDY
The general relevance of the study lies in its understanding of the
Economic Impact of Stock Market on Nigerian economy and so will be
particularly relevant in the following areas.
A. In particular, by using Nigeria stock market as empirical evidence,
the research will provide quantitative information which will enable us
to ascertain whether or not stock price fluctuations have impact on
the Nigerian economy. The finding of the study will reveal or will
therefore be relevant to the government and policy makers in finetuning stock market policies that will be applied to ascertain
sustainable in the Nigerian stock market.
B. Also, it will relevant to the stock market operators, monetary
institutions or authorities and regulating agencies to harness and fine-
tune stock market prices to promote high performance level especially
at this critical moment of global economic crises and the nation’s
C. The findings if the study will equally afford quoted companies the
stock opportunity to assess whether or not they have been
performing well in terms of price stability.
D. Finally, a further justification for the study is the benefit of
applying the economic analysis of the impact of stock market in
Nigeria to economic and financial analysis kits and increases the stock
of knowledge in both the stock market and the Nigerian economy.
1.6 SCOPE AND LIMITATIONS OF THE STUDY
This work is a study of economic impact of stock market on the
Nigerian economy. The study employs empirical evidencefrom both
stock market using the Nigerian stock exchange and Nigerian economy
as whole. The choice is made out of the researcher’s interest in the
given country’s stock market and economic circumstances. The period
covered by the research is twenty-five (24) years period 1986-2010. The
availability of uniform data on the variables informed the researcher’s
choice of the period of analysis.
This study is limited by the following factors;
1. Paucity of materials: Materials for the study were not adequate
which could not allow for an in-depth study.
2. Inaccessibility of data: Difficulty in accessing data for the study
was yet another limitation.
3. Financial constraint: Lack of adequate funds on the part of the
researcher constituted another problem.
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