Abstract
This study investigated the role of stock market development on economic growth of Nigeria using a 15-year time series data from 1994 - 2008. The method of analysis used is Ordinary Least Square (OLS) techniques. The study measures the relationship between stock market development indices and economic growth. The stock market capitalization ratio was used as a proxy for market size while value traded ratio and turnover ratio were used as proxy for market liquidity. The results show that market capitalization and value traded ratios have a very weak negative correlation with economic growth while turnover ratio has a very strong positive correlation with economic growth. Also, stock market capitalization has a strong positive correlation with stock turnover ratio. This result implies that liquidity has propensity to spur economic growth in Nigeria and that market capitalization influences market liquidity. We should view with caution the notion that stock market size is not significant for economic growth since multicollinearity exists in the data used for this analysis. The government should make policies that boost the interest of domestic investors in Nigeria as this might spur investors’ interest and boost stock market activity.Keywords: Stock Market Development, Economic Growth, Time Series Analysis, Nigeria, Market capitalisation, liquidity.
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