Stock market response to fiscal policy in Nigeria: Empirical evidence

This study investigates the stock market response to fiscal policy shocks in Nigeria using the structural VAR methods. The data used consist of 31 yearly observations on total government revenue, total expenditure and the Nigerian stock market price index from 1985 to 2015. Fiscal policy variables are expressed as a ratio of GDP. Contradicting most previous studies including Darrat (1988), Ardagna (2009), Agnello and Sousa (2010) and Laopodis (2010), the study finds evidence that although, stock prices respond positively to fiscal policy shocks, the effect of these shocks on the stock market is insignificant. The observed variation in stock prices is largely caused by own shock. Thus, fiscal policy has very little or no influence on the stock market in Nigeria. Based on these findings, the study recommends that Nigerian fiscal authorities should take cognizance of stock market activities while formulating fiscal policies in Nigeria.