Stock Market Performance and Economic Development in Nigeria between 2003 and 2007

Abstract

This study examined stock market performance and economic development in Nigeria between 2003 and 2007. The central focus is that a high level of capital market performance is a necessary condition for accelerating growth in an economy. This is because of the central role of the capital market system in mobilizing savings and allocating same for the development process. The study made use of secondary data, sourced for a period of 5 years. The study specified nine explanatory variables based on theoretical underpinnings. The study sought to establish a relationship between these variables and capital market performance index. The two stages least squares analytical framework was used in the analysis. A trend analysis was also done in the study. At the end of the study, it was found that capital market performance index is low in Nigeria over the years under review. The study also found that the nine explanatory variables, as a whole were useful and had a statistical relationship with capital market performance. But four of the variables; lending rates, capital market savings ratio, cheques/GDP ratio and the deposit money banks/GDP ratio had a significant relationship with capital market performance. We concluded that: the capital market system has not sustained an effective capital market intermediation, especially credit allocation and a high level of monetization of the economy. Thus the regulatory framework should be restructured to ensure good risk management, corporate governance and stemming systemic crisis in the system.

Keywords: capital market, market growth, market efficiency and economic development