Abstract
This study dissected fiscal policy from monetary policy to unravel its impact on Capital market performance in Nigeria and how capital market responds to fiscal policy measures. The empirical analysis came up with the following major findings; the Error Correction Model revealed that market Capitalization as a performance index in this study is autoregressive, implying that previous market capitalization can predict investors’ perception of the market in the futures, also the model’s results show that recurrent expenditure and Non-Oil Revenue have negative and significant relationship with capital market performance in Nigeria. And Domestic debt was found to have a positive and significant relationship with capital market performance, validating the Keynes’s postulations reviewed in this study that government should adopt fiscal policy through deficit financing to put an end to further economic depression and related issues. Pairwise Granger Causality Test Results found bi-directional effect between domestic debt and market capitalization, implying that the duo drive each other or have feedback effect. Also VEC Granger Causality/Block Exogeneity Wald Test revealed that fiscal policy variables jointly cause capital market performance in the long run. The impulse responses revealed that shock market capitalization (own shock) exerted huge influence in the cause of variations on capital market performance followed by shocks from government expenditures. It is in light of the findings the researchers among others; advise the regulatory authorities in Nigeria that government revenues and expenditure be adequately orchestrated as main drivers to correct disequilibria in the Nigeria.
Highlights
The capital market as one of the environments of investment decisions is an avenue for the interactions among the surplus and deficit economic units of any economy
The results indicates that all the variables; Market Capitalization (MKTCAP), Capital Expenditure (CEX), Recurrent Expenditure (REX), Non-Oil Revenue (NOR) and DBT are integrated at order
The results show that recurrent expenditure and Non-Oil Revenue have negative and significant relationship with capital market performance in Nigeria
Summary
The capital market as one of the environments of investment decisions is an avenue for the interactions among the surplus and deficit economic units of any economy. These interactions offers the surplus units to vent for the excess of their contemplated investment, while the deficit economic units made the deficiency or shortfalls by issuing financial claims on themselves. This is a veritable opportunity for the surplus economic units to procure income-yielding financial assets. It is a restrictive or expansionary budgetary policy of the government aimed at manipulating the revenue sources, public expenditure and public debt for promoting economic conditions and actions consistent with business growth and economic stability
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