The study examines the impact of stock market on economic growth in Nigeria for a 31-year period spanning between 1981 and 2018. Specifically, the study investigated the impact of key stock market indicators – market capitalization, all share index and inflation on economic growth, represented by real gross domestic product.

The study adopted secondary method. The study utilized the Vector Error Correction Modelling to estimate the cause-effect relationship. Results of the unit root test showed that the variables were stationary at the first-order difference and the Johansen cointegration indicated four cointegrating equations in the model. The optimal lag length used was two as indicated by the Akaike Information Criterion. The VECM results showed that a percent rise in market capitalization and all share index is associated with 0.007 percent and 0.008 percent rise in economic growth, on average ceterisparibus in the short run. Inflation had almost no impact on economic growth within the estimated years. The coefficient of determination printed at 0.47.  coefficient of the ECT is negative as expected. This implies that the previous year’s deviation from long-run equilibrium is corrected at the speed of four percent. Interpreting in another way, the speed of adjustment from short-run to long-run equilibrium is four percent.

The study concluded that the stock market had positive but weak impact on economic growth in Nigeria within the sampled period. The study further recommends that: There is need for an appropriate policy framework to encourage foreign and local investors participate meaningfully in the stock market. Restoring confidence in the market by regulatory agencies is important by ensuring transparent and fair-trading transactions and dealing on the bourse. It is expedient for government to invest more and develop infrastructures in order to create an enabling environment for businesses to grow and productivity to thrive, with consequent impact on the economy. Investable securities on the Nigerian stock exchange is very low.




1.1                   Background to the Study

It is now indisputable that financial development, especially that of the stock market is critical to boost the economic growth of a nation. The determinants of the stock market are many and as crucial as this development may be, through series of research, it can be noted that the determinants of the stock market are not certain. Hence, the knowledge of what factors affect the stock market is important and evidently varies from country to country, economy to economy. As numerous as it may be, it can be narrowed down to its most important or the key determinants on which this research will be based.

Tested through different regions, there are various determinants identified. These include the investment ratio(Gross fixed capital formation:GDP), national savings rate(domestic savings:GDP), foreign direct investment(FDI), stock market liquidity and inflation(consumer price index/CPI)


Originally known as the Lagos Stock exchange (before 1977), the NSE started its operations in 1961 with a listing of 19 securities for trading. Other key cities also started to develop their branches and now the NSE consists of 13 branches and as at July 9th, 2019 had a total market cap of 14.288 trillion naira with 169 listed companies making it the largest in Africa. The NSE is said to champion the acceleration of Africa’s economic development and to become ‘’the Gateway to African Markets’’ Wikipedia (2012).


The Nigerian stock market is divided in to two which are:

1. The Primary Market which consists of new stocks that have just been introduced to the public market for the first time, so all stock on the primary market can be considered brand new. This is especially helpful to new businesses and Small and Medium Enterprises(SMEs). This market is known as an environment where government and public companies are able to raise inexpensive capital for investment and/or development. The regulatory bodies of this market are the Nigerian Stock Exchange (NSE) and Securities and Exchange Commission (SEC).

2. The Secondary Market which unlike the primary market, is a resale market where already existing securities are traded. Note that it is not the same as the second hand market as the latter trades inferior securities.


Broadly put, the objective of this study is to observe and infer the determinants which affect the stock market and how they do this, their relationship and their magnitude of effect. This will be carried out through mostly secondary research data through the use of time series.


1.2       Significance of the Study

Specifically, the long and short run effects of the stock market on the growth of the economy would be analyzed in order to determine the level or contribution the stock market has to the growth of the economy. The finance and securities sector would benefit a lot from the outcome of the study so as to understand the market and it movements as well as economic benefit. Findings from this study will be added to existing knowledge on the macroeconomic determinants and their effect through the stock market on the growth of the economy.


1.3                   Statement of Problem

The problem is that the stock market has several possible determinants each having variable effects on the performance of the overall stock market’s performance which in turn would affect the Nigerian economy, and to identify the scale and magnitude of this behavior. In previous works, other researchers have attempted to identify these determinants or even just neglect some main determinants which would have a strong impact on the results. Also, the level of reactivity to the stock market the economy has is not a topic that has been fully or deeply explored in previous works.



1.4 Relevant Research Questions

Aligning with the objectives above in 1.3,

  1. What are the main determinants of the stock market performance?
  2. What is the relationship like between the stock market and the Nigerian economy?
  3. What are the changes in the stock market size and performance in the past 25 years?
  4. What are the changes to the GDP in Nigeria over the past 25 years?


1.5                   Research Objective

The main objective of this research is to identify the key determinants of stock market performance and how well they have affected the stock market and therefore the level of impact the stock market has on the Nigerian economy.

Specifically the objectives are:

  1. Determine the key determinants of stock market performance.
  2. Identify the pattern of growth as well as the magnitude in percentage of the stock market growth.
  3. Identify the relationship between Nigeria’s economic growth and the stock market.



1.6       Statement of Hypothesis

H0: The performance and growth of the stock market does not have an impact on the Nigerian economy.

H1: The performance and growth of the stock market has an Impact on the Nigerian economy.


1.7       Justification of the Study

In previous works, the stock market has been analyzed using various models and variables with different effects ranging from positive to negative and insignificant to significant. There has not been a consensus on the most important variables with the most significant effects. This study is intended to carry out research using variables which are seen to be quite effective and crucial to the stock market over the years.

It is important to note that the majority of the research carried out have different outcomes and views. Hence this study would be important to explain the stock market and analyze its behavior with the use of a different set of combination of variables.


1.8       Scope of the Study

The general area covered by this study is the stock market industry in general within the Nigerian economy as well as the growth of the Nigerian economy itself. However, the study specifically focuses on how the stock market and gross domestic product interact taking into consideration, the relationship and the magnitude for the period of 1993-2018.