ABSTRACT:

The paper addresses the question, "Is there really a link between stock market performance and economic growth in Nigeria. or is the stock market liquidity just highly correlated with some exogenous non-financial factors?" The paper utilises the Johansson's Vector Error Correction Model (VECM) in establishing if a long-run relationship does exist between stock market performance and economic growth in Nigeria using annual data from 1970-2004 The empirical results suggest that a long-run relationship does exist between stock market and economic growth as indicated by the significance of the Error Correction Model (ECM). The paper further establishes a uni-directional causality that runs from stock market to economic growth. The paper therefore reveals that the stock market is significant in determining economic growth in Nigeria. However, the paper further suggest that caution should be exercised in interpreting this uni-directional causality since other non-financial exogenous variables such as have been identified to influence the direction of stock market development in Nigeria.