Abstract:

The study estimated the threshold level of stock market volatility on economic growth in Nigeria for the period 1985 to 2016 using a quadratic regression model. The Johansen co-integration test confirmed the existence of a long run relationship among the variables. The study found evidence of a threshold effect of stock market volatility on economic growth in Nigeria. The result revealed that the critical point of stock market price volatility which impacts on economic growth for the Nigerian economy is 7.1 percent, beyond this level, stock market price volatility starts exerting cost on growth. The marginal impact of stock market price volatility on growth becomes negative beyond a threshold ratio of about 7.1 percent of GDP. Also, the study revealed that almost all the explanatory variables had signs that were inconsistent with theoretical predictions except capital and trade that had expected signs in line with theoretical expectations. All stakeholders of the Nigerian stock market are, therefore, advised to monitor the stock market price closely such that investment is made close to or equal to 7.1 percent of the GDP to have a positive impact on the economy. Any investment made beyond this threshold point could have an adverse effect on economic growth.