| Peer-Reviewed

Capital Market and Fiscal Policy Shocks in Nigeria

Received: 7 May 2020     Accepted: 25 May 2020     Published: 3 June 2020
Views:       Downloads:
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.

Published in Journal of Finance and Accounting (Volume 8, Issue 3)
DOI 10.11648/j.jfa.20200803.13
Page(s) 125-135
Creative Commons

This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.

Copyright

Copyright © The Author(s), 2020. Published by Science Publishing Group

Keywords

Fiscal Policy, Market Capitalization, Impulse Responses, Nigeria

References
[1] Afonso, A. & Sousa R. M., (2009). Fiscal policy, housing and stock prices. European Central Bank, Working paper, 990.
[2] Afonso, A. & Sousa, R. M., (2011). What are the effects of fiscal policy on asset markets? European Central Bank, Working paper, 28, 1871-1890.
[3] Afonso, A. &Sousa, R. M. (2012). The macroeconomic effects of fiscal policy. Applied Economics, 44, 4439-4454.
[4] Agnello L., Dufrénot G. & Sousa R. M., (2015). Nonlinear effects of asset prices on fiscal policy: Evidence from the UK, Italy and Spain. Journal Elsevier, Economic Modeling, 44, 358-362
[5] Anghelache, G., Jakova, S & Oanea, D. (2016). Fiscal policy and capital market performance: Evidence from European Union countries from Central and Eastern Europe. International Journal of Academic Research in Accounting, Finance and Management Sciences, 6 (2), 34-63.
[6] Ardagna S., (2009). Financial markets. behavior around episodes of large changes in the fiscal stance. European Economic Review, 53, 37–55.
[7] Ardagna, S., Caselli, F. & Lane, T. (2004). Fiscal discipline and the cost pf public debt service: some estimates for OECD countries. HU Working Paper, Cambridge: Harvard University
[8] Babalola, J. A. & Adegbite, M. A. (2001) The performance of the Nigerian capital market since deregulation in 1986. Central Bank of Nigeria Economic and Financial Review, 39 (1), 1–20.
[9] Balassone, F., Franco, D. & Giordano, R. (2004). Market induced fiscal discipline: is there a fallback solution for rule-failure? BI Working Paper, Perugia: Banca d‟Italia.
[10] Barro, R. J. (1974). Are government bonds net wealth? Journal of Political Economy, 82, 1095-1117.
[11] Barro, R. J., (1979). On the determination of public debt. Journal of Political Economy. 87, 940-971.
[12] Bhalla, V. K. (2011). Investment management: Security analysis and portfolio management. New Delhi: S. Chad and Company Ltd.
[13] Blanchard, O. J. (1981) Output, the stock market and interest rates. American Economic Review, 71, 132–43.
[14] Brealey, R. A. & Myers, S. C. (2003). Principles of corporate finance. New Delhi: McGraw Hill.
[15] Eyo, E. (2016). Impact of fiscal policy on the performance of the Nigerian stock exchange. International Journal of Interdisciplinary Social Science Studies, 2 (1), 36-44
[16] Ezirim, C. B., Muohgalu, M. I., Elike, U. & Amuzie, A. E. (2010). Public expenditure growth, inflation and cointegration: evidence from Nigeria. International Journal of Business and Behavioural Sciences Research, 1 (1), 1–14.
[17] Fama, E. F. (1970). Efficient capital markets: A review of theory and empirical work. Journal of Finance, 25 (1), 83-417.
[18] Fisher, D. E. & Jordan, R. J.(2005). Security analysis and portfolio management. Delhi: Pearson Education.
[19] Göndör, M. & Bresfelean, V. P. (2011). Fiscal policy, the main tool to influence the capital markets’ strength. Conference on Recent Advances in Applied & Biomedical Informatics and Computational Engineering in Systems Applications, 458-463. https://www.researchgate.net/publication/262233178_Fiscal_policy_the_main_tool_to_influence_the_capital_markets%27_strength.
[20] Hsing, Y. (2013) Effects of fiscal policy and monetary policy on the stock market in Poland. Economies, 1, 19-25. Available from: http://dx.doi.org/10.3390/economies.
[21] https://www.imf.org/external/pubs/ ft/staffp/2003/00-00/rv.pdf. Retrieved 30/3/2020.
[22] Ibenta, S. N. (2005). Investment analysis and financial management strategy. Enugu: Institute of Development Studies.
[23] Karlygash, K. (2013). Optimal fiscal policy and different degrees of access to international capital market. Journal of Development Economics, 103.
[24] Kendall, M. G. (1953). The analysis of economic time series, Prices. Journal of the Royal Statistical Society, 96, 11–25.
[25] Keynes, J. M. (1936). The general theory of employment, interest and money. Reviewed by: F. Vito Rivista. Internationale di Scienze Sociali Serie III, 7 (44), 654-656.
[26] Laopodis, N. (2010). Dynamic linkages between monetary policy and the stock market. Review of Quantitative Finance and Accounting, 35, 271-293.
[27] Monacelli, T. & Perotti, R. (2006). Fiscal policy, the trade balance, and the real exchange rate: implications for international risk sharing. IGIER, Working Paper, Milan: Bocconi University.
[28] Ogbulu, O. M., Torbira, L. L. & Umezinwa, C. L. (2015). Assessment of the impact of fiscal policy operations on stock price performance: Empirical evidence from Nigeria. International Journal of Financial Research, 2 (6), 190-202.
[29] Okafor, F. O. (1983). Investment decisions: Evaluation of projects and securities. London: Cassel.
[30] Perotti, R. (2005). Estimating the effects of fiscal policy in OECD countries. CEPR Discussion Paper, 168, Milan: Bocconi University
[31] Razin, A. (1987). Fiscal policies and the stock markets: International dimensions. National Bureau of Economic Research: Working Paper Series, No. 2389.
[32] Riascos A. & Vegh C., (2003). Pro-cyclical government spending in developing countries: Therole of capital market imperfections. Banco de la Republica UCLA and NBER, from https://www.imf.org/ external/pubs/ft/staffp/2003/00-00/rv.pdf 25. Retrieved 30/3/2020.
[33] Romer, C. & Romer, D. (2007). The Macroeconomic effects of tax changes: estimates based on a new measure of fiscal shocks. NBER Working Paper, 13264, Cambridge: The National Bureau of Economic Research.
[34] Ross, S. A., Westerfield, R. W., Jaffe, J. & Jordan, B. D. (2009). Modern financial management (8th edition). New Delhi: McGraw Hill.
[35] Shah, A. (1984) Crowding out, capital accumulation, the stock market, and money-financed fiscal policy. Journal of Money, Credit, and Banking, 16, 461–473.
[36] Tavares. J. & Valkanov, R. (2003). The neglected effect of fiscal policy on stock and bond returns. Social Science Research Network, Electronic Journal.
Cite This Article
  • APA Style

    Ejem Chukwu Agwu, Ogbonna Udochukwu Godfrey. (2020). Capital Market and Fiscal Policy Shocks in Nigeria. Journal of Finance and Accounting, 8(3), 125-135. https://doi.org/10.11648/j.jfa.20200803.13

    Copy | Download

    ACS Style

    Ejem Chukwu Agwu; Ogbonna Udochukwu Godfrey. Capital Market and Fiscal Policy Shocks in Nigeria. J. Finance Account. 2020, 8(3), 125-135. doi: 10.11648/j.jfa.20200803.13

    Copy | Download

    AMA Style

    Ejem Chukwu Agwu, Ogbonna Udochukwu Godfrey. Capital Market and Fiscal Policy Shocks in Nigeria. J Finance Account. 2020;8(3):125-135. doi: 10.11648/j.jfa.20200803.13

    Copy | Download

  • @article{10.11648/j.jfa.20200803.13,
      author = {Ejem Chukwu Agwu and Ogbonna Udochukwu Godfrey},
      title = {Capital Market and Fiscal Policy Shocks in Nigeria},
      journal = {Journal of Finance and Accounting},
      volume = {8},
      number = {3},
      pages = {125-135},
      doi = {10.11648/j.jfa.20200803.13},
      url = {https://doi.org/10.11648/j.jfa.20200803.13},
      eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.jfa.20200803.13},
      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.},
     year = {2020}
    }
    

    Copy | Download

  • TY  - JOUR
    T1  - Capital Market and Fiscal Policy Shocks in Nigeria
    AU  - Ejem Chukwu Agwu
    AU  - Ogbonna Udochukwu Godfrey
    Y1  - 2020/06/03
    PY  - 2020
    N1  - https://doi.org/10.11648/j.jfa.20200803.13
    DO  - 10.11648/j.jfa.20200803.13
    T2  - Journal of Finance and Accounting
    JF  - Journal of Finance and Accounting
    JO  - Journal of Finance and Accounting
    SP  - 125
    EP  - 135
    PB  - Science Publishing Group
    SN  - 2330-7323
    UR  - https://doi.org/10.11648/j.jfa.20200803.13
    AB  - 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.
    VL  - 8
    IS  - 3
    ER  - 

    Copy | Download

Author Information
  • Department of Banking and Finance, Abia State University, Uturu, Nigeria

  • Department of Management Science, Rhema University, Aba, Nigeria

  • Sections