Bond Market Equity Market and Economic Growth Nexus: Evidence from Nigeria

Abstract

This study investigates the nexus between equity market performance, bond market performance, and economic growth in Nigeria using an ARDL model with annual data from 2009 to 2025. This study offers insights into an underexplored area, i.e., the linkage between equity and bond markets and economic growth in Nigeria. The estimation method used for the study was the Autoregressive Distributed Lag (ARDL) bounds cointegration model. The ARDL results showed that there was a long-run relationship between GDP growth and the independent variables. There was a rapid adjustment from short-run disequilibrium towards the long-run equilibrium at a rate of 121 per cent. The coefficient is statistically significant, as is required for a proper error correction mechanism. Additionally, the parameter stability and robustness checks showed that the estimated parameters of the model were stable. This study provides evidence that in the short run, bond market performance has a positive but not statistically significant impact on growth, while in the long run it has a negative and significant impact on growth in Nigeria. The equity market has a positive but statistically insignificant impact in the short run but a statistically significant positive impact on growth in the long run.  Inflation has a positive but insignificant association with growth in the short run and in the long run, while the prime lending rate has a negative and significant impact on growth both in both the short run and the long run. The study recommends that government borrowing should be channelled toward productive uses of the funds raised through bonds rather than merely increasing the volume of bond issuance. Policymakers should promote a lower and more investment-friendly lending-rate environment. Capital market regulators should pursue policies that encourage more firms to list on the Nigerian Exchange. There should be more coordination between market operators, regulators, and relevant institutions on both the monetary and fiscal sides to ensure that the financial market supports productive investment and sustainable economic growth in Nigeria.