DOES STOCK MARKET PROMOTE ECONOMIC GROWTH IN AN EMERGING MARKET? A CAUSALITY INVESTIGATION

This paper examines the existence of causality relationship between stock market performance and economic growth in Nigeria using Granger causality test. Time series data on economic growth, proxied by Gross Domestic Product (GDP), and stock market performance indicators, such as market capitalization ratio (MCAPR), turnover ratio (TOR) and total number of deals ratio (TNDR) derived from the central bank of Nigeria (CBN) statistical bulletin, Vol. 20, 2009 and National Bureau of Statistics (NBS) official website, were used. The study finds the empirical evidence of long-run co-integration between economic growth and stock market performance. However, with regard to causal relationship between GDP and Stock market performance indicators, unidirectorial causality was established from MCAPR and TNAR to GDP only on the longrun. On the short-run, there was no causal relationship between economic growth and stock mark performance. Furthermore, the impact of the stock market on economic growth was found to be negative and non-significant at 5% level. This is quite understandable because the unethical practices and the subsequent crash in the stock market have undermined the potentials of the market in enhancing economic growth in Nigeria. The study therefore recommends that the regulatory authorities should initiate policies that would rekindle the dwindling interest and confidence of both domestic and foreign investors in the market, and also be more proactive in their surveillance role in order to checkmate negative practices which undermine market integrity.