Effect of financial deepening on stock market returns: The case of military and democratic post-SAP regimes in Nigeria

Ismaila Akanni Yusuf, Ekundayo Mesagan and Agatha Nkem Amadi
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Ismaila Akanni Yusuf: Department of Financial Technology, University of Strathclyde, Glasgow, Scotland.
Agatha Nkem Amadi: Department of Economics, University of Lagos, Nigeria.

BizEcons Quarterly, 2020, vol. 6, 3-21

Abstract: This study examines the effect of financial deepening on stock market returns in the post-Structural Adjustment Programme era between 1985 to 2018 in Nigeria. The quest to ensure a vibrant stock market vis-à-vis a virile financial system that is broadened enough to accommodate several segments of the population provides the motivation for this study. Thus, the study employs credit to the private sector, broad money supply, and liquidity as indicators of financial deepening. Stock market turnover captures stock market returns, while the all share index and market capitalisation are used as control variables. The vector auto regressive results confirm that private sector credit is positive but insignificant while money supply is positive and significant in enhancing stock market returns in both the military and democratic eras. Again, banks’ liquidity is insignificant in both regimes. While it negatively stock market returns during the military era, it affects it positively during the democratic era. Furthermore, result shows that there is mutual causality between financial deepening and stock market returns in the military era. Meanwhile, in the democratic era, only unidirectional causality exists from financial deepening to stock turnover. We recommend that the central bank should target policies that attract portfolio investment to increase foreigners’ stake in the country’s stock market.

Keywords: Financial Deepening Stock Market; Money Supply; Stock Returns (search for similar items in EconPapers)
JEL-codes: G11 G14 G15 H11 L10 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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