Volatility in the Stock Market and Its Effect in the Nigerian Economy

Volatility in the Stock Market and Its Effect in the Nigerian Economy.

ABSTRACT

In this study we have discussed the concept of stock markets and its operations and also how the stock market affected economic growth in Nigeria for a period 35 years (1981 to 2015). The study used the OLS estimation technique to empirically investigate the effect of stock market volatility on economic growth in Nigeria.

The findings of this study can be summarized as; Market capitalization is a positive and significant determinate of economic growth in Nigeria.

In addition, gross capital formation is a positive and insignificant determinate of economic growth in Nigeria. Furthermore, inflation is a negative and significant determinate of economic growth in Nigeria.

Also turnover ratio and total value traded ratio are both positive but insignificant to economic growth in Nigeria. Finally, stock market volatility is a significant determinate of economic growth in Nigeria.

Based on the findings of this study, it thus recommended that the SEC and related government agencies should endeavor to encourage more private limited liability companies and informal sector operators to access the market for fresh capital.

INTRODUCTION

The financial system can be described as the nervous system of any economy in the world be it a developed or developing economy. The role the financial system play in ensuring and stabilizing economic growth cannot be over looked.

The financial system comprises of the central bank, commercial banks, mutual funds, brokerage firms, discount houses, Merchant banks, insurance companies and stock exchange, to mention but a few.

These institutions trade in financial instruments such as domestic currency, foreign currency, stocks, bonds, and derivatives and so on, and in the process mobilize funds from surplus unit (savers) to deficit unit (investors) Abu (2009).

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