Do Capital Market Returns Actually Predict the Standard of Living of A Nation:Evidence from Nigeria

Abstract

The study tried to resolve the disagreement in many quarters that the returns of the capital market do not predict or relate to the standard of living of a reporting nation. The position of the researchers in this study was taken by using Nigeria Stock Exchange data and world bank website from 1985 to 2021 and analyzed with Error Correction Mechanism, among others. The result of the cointegration test showed that long run relationship exists between the dependent variable-standard of living proxied by Per capita Gross Domestic Product and independent variables, All-Share Index, Value of Transactions and Volume of Transactions. Further analyses revealed that All Share Index significantly relate to standard of living, while other variables insignificantly impact standard of living in Nigeria. However, the Granger causality test showed that the Per Capita Gross Domestic Product granger causes the Value of Transaction in the Capital Market; implying that Standard of living in Nigeria that determines the Value of Transactions in the Capital Market and not the other way round. It is also observed that Per Capita Gross Domestic Product (standard of living indicator) is not autoregressive or does not reinforce itself; which statistically is confirmed evidence showing that standard of living in the past cannot predict future standard of living in Nigeria. It is on these premises that the researchers recommend among others that policies should be put in place to enhance the growth of the capital market which will ultimately impact on the standard of living of Nigerians.

Keywords: Standard of living, Capital market, ECM, Nigeria

DOI: 10.7176/RJFA/13-12-07

Publication date:June 30^th 2022