Advanced Econometrics

This study investigates the impact of the macroeconomic variables on stock market development in Nigeria during the period 1970-2013. To estimate the relationship, the study used unit root tests, lag selection criterion, F-bound test, ARDL short-run and long-run test, and VECM-Granger causality test. The result showed that the error correction terms contribute in explaining the changes in all the variables. Based on estimated coefficients and t-statistics, it is found that foreign direct investment, consumer price index, interest rate and oil price have a significant positive influence on stock market development in the long-run. Money supply has a significant negative influence on the stock market development. The causality test indicated the presence of short-run and long-run unidirectional causality running from foreign direct investment, consumer prices index, oil prices to the stock market development. A unidirectional causality also runs from interest rate to money supply and from money supply to consumer price index. The study recommends that; Policy makers, financial policies and investors, need to take the macroeconomic indicators into account when formulating financial and economic policies in diversification and structuring of the portfolio. The government should increase the standard of living of the people by providing essential infrastructural facilities and social amenities in order to enhance the ability of the people to save and invest in the stock market. INTRODUCTION Ever since the pioneering contributions of Fama[1], Jaffe and Mandelker[2], and Fama and Schwert[3] the relationship between stock market performance and macroeconomic variables has been an important issue of debate. The Fama[1]efficient market hypothesis suggest that an efficient market will ensure that all the relevant information currently known about macroeconomic variables are directly reflected in current stock market performance. The recent endogenous growth theory (1986) shows that stock market development promotes economic activities through providing an investment channel that attract both domestic and foreign flow of capital. Factors that influence stock market development has for long been a topic of debate among financial economist. A study carried out by Demirgüç-Kunt and Levine [4]and the recent works of Yartely[5] have supported that macro economic factors influence stock market development. However, others concentrated on macroeconomic and institutional qualities[6]. Stock market development can be measured by market capitalization, the total value of stock transactions, stock market liquidity or integration with global capital market[7]. However, many

The study empirically investigated the relationship between financial intermediaries and economic growth in Nigeria. Annual time series data covering 1970 to 2013 were used to analyze the long run and short run relationship between the development of financial intermediaries and economic growth along with the direction of causality between the indicators. The results of the unit root test show that the variables are integrated at I(1). Cointegration is being found between the series in the presence of a structural break in 1987, 1992 and 1996. Using bound testing technique for cointegration a stable long-run relationship was found between the indicators of financial intermediaries and the economic growth. Error correction coefficient was statistically significant. It was concluded that insurance premium and value of stock transaction have a positive impact on economic growth in both short runs and long-run. However, bank credit has a negative influence on economic growth. The causality test reveals a bi-directional relationship between bank credit and economic growth while a unidirectional causality moves from economic growth to insurance premium and value of stock transactions. Here remains an important policy implication for the concerned individuals of Nigeria, that is, they have to emphasize in financial development to ignite economic growth.