Analyses of Macroeconomic Drivers of Stock Market Development in Nigeria

Abstract

The paper investigates the long run and short run relationship between the endogenous variable (stock market development) and exogenous variables (economic growth, banking sector development, inflation, stock market liquidity and trade openness) in Nigeria. Annual data were collected using desk survey approach. Autoregressive Distributed Lag (ARDL) test and ARDL error correction regression model was used after preliminary tests were carried out to ascertain stationarity properties. From the result of the analyses, it was discovered that gross domestic product, domestic credit to private sector and trade openness has negative impact on Nigeria stock market development in the long run, whereas inflation rate and total value of shares traded had a positive impact on the development of the Nigeria stock market in the long run. The results suggested that domestic credit to private sector, stock market liquidity, ratio of credit to private sector, total value of traded stock as well as ratio of trade openness are key drivers of stock market development in Nigeria. As part of recommendations, government should strengthen and solve the weaknesses affecting development of Nigeria’s stock market. Policy makers should pursue those policies that stimulate banking sector development so as to promote immediate development of the stock market and government should intensify efforts in stability of inflation rate so as to promote stock market development in the long- run.