FISCAL DEFICITS AND STOCK PRICES IN NIGERIA: AN EMPIRICAL EVIDENCE

Igbinedion Sunday Osahon () and Oriakhi Dickson
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Igbinedion Sunday Osahon: University of Benin, Benin City, Nigeria
Oriakhi Dickson: University of Benin, Benin City, Nigeria

Economic Thought and Practice, 2013, vol. 22, issue 1, 259-274

Abstract: This study investigates the effects of fiscal deficits on stock prices in Nigeria, utilizing vector auto-regression and error-correction mechanisms (ECM) techniques with annual time series data spanning 1984-2010. The results reveal, amongst others, that fiscal deficit is negatively related to stock prices. Therefore, to maintain a robust stock market, the authorities are expected to de-emphasize monetary financing of fiscal deficits in preference for bond-financing, since the former not only promotes the problems of inflation in the economy, but also depresses stock prices as well. Such efforts should be complemented by mounting more vigorous awareness campaigns to help sensitize and attract more investors into the stock market.

Keywords: Stocks; fiscal deficits; Nigeria (search for similar items in EconPapers)
JEL-codes: G10 H62 H68 (search for similar items in EconPapers)
Date: 2013
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