Abstract
In this study, we assess the casual relationship between index of industrial production and Nigeria stock market liquidity and the effect stock market liquidity has on industrial production. Data on index of industrial production and value of stock traded ratio to gross domestic product from 1981 to 2015 were sourced from Nigerian Stock Exchange and Nigeria Bureau of Statistics. Before we carried out the model estimation, diagnostic test heteroscekasticity, serial correlation and Ramsey RESET test were performed. The unit root result indicates that the variables were stationary at first difference. The result of the Johansen Co-integration revealed that there is a long run equilibrium relationship between index of industrial production and stock market liquidity. The OLS regression reports that stock market liquidity has not positively influenced index of industrial production. The error correction model indicates that 21% of the error generated in the last period is corrected in the current period. The granger causality test discloses that stock market liquidity has no significant effect on index of industrial production rather it is the index of industrial production that has significant effect on stock market liquidity in Nigeria production. From our findings, we recommends relaxation in some of the stringent requirements for entry into the market to ensure that more companies are listed as industries are the large user of external fund and they grow faster in countries with high level of stock market development and efficient legal system.
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