STOCK MARKET DYNAMICS AND ECONOMIC GROWTH IN NIGERIA: EVIDENCE FROM STRUCTURAL VARIANCE AUTOREGRESSIVE MODEL

The relationship between stock market volatility and Nigeria’s economic growth remains inadequately explored, particularly regarding its structural inefficiencies such as low liquidity, weak investor participation, and limited integration with the broader economy. This study investigates how key stock market indicators—market capitalization, the all-share index, securities trading value, and private sector investment—affect economic growth in Nigeria. Unlike previous studies that focus predominantly on monetary aggregates, this research employs Structural Vector Autoregressive (SVAR) modelusing quarterly data from 2000Q1 to 2021Q4 to analyze stock market-induced shocks and their macroeconomic effects. Findings reveal that while market capitalization and the all-share index positively influence economic growth, their effects are constrained by weak market depth and inefficiencies. Variance decomposition results indicate that economic growth is predominantly self-driven, with minimal short-term contributions from stock market. The study highlights the disconnection between private investment and stock market dynamics, underscoring the need for deeper financial integration. By focusing on structural inefficiencies and employing SVAR to capture dynamic interactions, this study advances the literature on Nigeria’s financial markets, offering a framework for understanding similar challenges in other emerging economies. Specifically, it contributes to the theoretical and empirical discourse by demonstrating how structural inefficiencies limit the stock market’s potential to drive economic growth, providing a foundation for future research. Policy recommendations emphasize improving market transparency, expanding investor participation, and aligning stock market growth with the real economy to foster sustainable economic development.

Keywords: Economic Growth, Stock Market Volatility, Market Capitalization, SVAR Model