DYNAMIC LINK BETWEEN STOCK MARKET SIZE AND STOCK MARKET INVESTMENT RETURNS IN NIGERIA

Abstract

ABSTRACT

Purpose—The aim of this study is to examine the dynamic link between stock market size and stock market investment returns in Nigeria.

Design/Methodology: Based on ex-post facto research design, the Autoregressive Distributed Lag (ARDL) technique was applied to the annual time-series data obtained from the Central Bank of Nigeria’s statistical bulletin for the period 1985 to 2019.

Findings-- Findings indicate the existence of a negative, weak and significant correlation as well as a long-run relationship between stock market size and stock market returns in Nigeria. Furthermore, this study confirmed that in the long run, the stock market size has a negative and significant effect on stock market returns in Nigeria. However, in the short run, the effect of stock market size on returns is positive and statistically significant.

Practical Implications--It is imperative that capital market policies directed at expanding the market size should be vigorously pursued by the Government in close partnership with the organized private sector while the long-run negative effect of stock market size on stock market investors should be mitigated by improving the environment of the financial market in the area law and policy framework, professionalism and ethical operations, infrastructural improvements, etc.

Original Value—This study posits that there is a significant negative long-run relationship between size and investment returns in the Nigerian Stock Exchange and this relationship has long-run policy implications on the economy.

Keywords-- All-share index, Autoregressive Distributed Lag, Investments, Market capitalization, Stock market size, Stock returns.

Paper Type—Research paper