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Stock Market Performance and Economic Growth: Evidence from Nigeria Employing Vector Error Correction Model Framework

Author

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  • Ugochukwu E. Anigbogu

    (Department of Economics, University of Nigeria, Nsukka)

  • Eleanya K. Nduka

    (Department of Economics, University of Nigeria, Nsukka)

Abstract

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.

Suggested Citation

  • Ugochukwu E. Anigbogu & Eleanya K. Nduka, 2014. "Stock Market Performance and Economic Growth: Evidence from Nigeria Employing Vector Error Correction Model Framework," The Economics and Finance Letters, Conscientia Beam, vol. 1(4), pages 90-103.
    • Handle: RePEc:pkp:teafle:2014:p:90-103
    DOI: 10.18488/journal.29/2014.1.9/29.4.90.103
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    Cited by:

    1. Eleanya K. Nduka & Ugochukwu E. Anigbogu & Ishaku R. Nyiputen, 2016. "Investigating the Causal Relationship Between Stock Market and Aggregate Economic Performance of South Africa," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 6(4), pages 218-227, April.
    2. Babatunde Akinmade & Festus Fatai Adedoyin & Festus Victor Bekun, 2020. "The impact of stock market manipulation on Nigeria’s economic performance," Journal of Economic Structures, Springer;Pan-Pacific Association of Input-Output Studies (PAPAIOS), vol. 9(1), pages 1-28, December.
    3. Jokosenumi Saidat Omolola & Adesete Ahmed Adefemi, 2018. "Modelling the Effect of Stock Market Volatility and Exchange Rate Volatility on Foreign Direct Investment in Nigeria: A New Framework Approach," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 8(12), pages 1482-1505, December.

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