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Effect of financial deepening on stock market returns: The case of military and democratic post-SAP regimes in Nigeria


  • Yusuf, Ismaila Akanni

    (Department of Financial Technology, University of Strathclyde, Glasgow, Scotland.)

  • Mesagan, Ekundayo Peter

    () (Department of Economics, School of Management and Social Sciences, Pan-Atlantic University, Lagos.)

  • Amadi, Agatha Nkem

    (Department of Economics, University of Lagos, Nigeria.)


This study examines the effect of financial deepening on stock market returns in the post-Structural Adjustment Programme era between 1985 to 2018 in Nigeria. The quest to ensure a vibrant stock market vis-à-vis a virile financial system that is broadened enough to accommodate several segments of the population provides the motivation for this study. Thus, the study employs credit to the private sector, broad money supply, and liquidity as indicators of financial deepening. Stock market turnover captures stock market returns, while the all share index and market capitalisation are used as control variables. The vector auto regressive results confirm that private sector credit is positive but insignificant while money supply is positive and significant in enhancing stock market returns in both the military and democratic eras. Again, banks’ liquidity is insignificant in both regimes. While it negatively stock market returns during the military era, it affects it positively during the democratic era. Furthermore, result shows that there is mutual causality between financial deepening and stock market returns in the military era. Meanwhile, in the democratic era, only unidirectional causality exists from financial deepening to stock turnover. We recommend that the central bank should target policies that attract portfolio investment to increase foreigners’ stake in the country’s stock market.

Suggested Citation

  • Yusuf, Ismaila Akanni & Mesagan, Ekundayo Peter & Amadi, Agatha Nkem, 2020. "Effect of financial deepening on stock market returns: The case of military and democratic post-SAP regimes in Nigeria," BizEcons Quarterly, Strides Educational Foundation, vol. 6, pages 3-21.
  • Handle: RePEc:ris:buecqu:0011

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    References listed on IDEAS

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    More about this item


    Financial Deepening Stock Market; Money Supply; Stock Returns;

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General


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