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Fiscal Deficits And Stock Prices In Nigeria: An Empirical Evidence

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  • Igbinedion Sunday Osahon

    (University of Benin, Benin City, Nigeria)

  • Oriakhi Dickson

    (University of Benin, Benin City, Nigeria)

Abstract

This study investigates the effects of fiscal deficits on stock prices in Nigeria, utilizing vector auto-regression and error-correction mechanisms (ECM) techniques with annual time series data spanning 1984-2010. The results reveal, amongst others, that fiscal deficit is negatively related to stock prices. Therefore, to maintain a robust stock market, the authorities are expected to de-emphasize monetary financing of fiscal deficits in preference for bond-financing, since the former not only promotes the problems of inflation in the economy, but also depresses stock prices as well. Such efforts should be complemented by mounting more vigorous awareness campaigns to help sensitize and attract more investors into the stock market.

Suggested Citation

  • Igbinedion Sunday Osahon & Oriakhi Dickson, 2013. "Fiscal Deficits And Stock Prices In Nigeria: An Empirical Evidence," Economic Thought and Practice, Department of Economics and Business, University of Dubrovnik, vol. 22(1), pages 259-274, june.
    • Handle: RePEc:avo:emipdu:v:22:y:2013:i:1:p:259-274
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    References listed on IDEAS

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    More about this item

    Keywords

    Stocks; fiscal deficits; Nigeria;
    All these keywords.

    JEL classification:

    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
    • H68 - Public Economics - - National Budget, Deficit, and Debt - - - Forecasts of Budgets, Deficits, and Debt
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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