An Empirical Assessment of the Impact of Nigerian all Share Index, Market Capitalization, and Number of Equities on Gross Domestic Product

A stock exchange is an exchange where stock brokers and traders can buy and sell shares of stock, bonds, and other securities. All listings are included in the Nigerian Stock Exchange All Shares index. In terms of market capitalization, the Nigerian Stock Exchange is the third largest stock exchange in Africa. Objectives: The paper assesses the impact of Nigerian Stock Market (all share index, market capitalization, and number of equities) on Gross domestic product (Economic Growth). Materials and Methods: Regression analysis and ordinary least square technique were employed. Result and Discussion: The series was stationary at 1%, 5%, and 10% α level; the residuals were normally distributed but not serially correlated at 5% α level. All Share Index, Market Capitalization and Total Number of listed Equities have a joint and individual significant effect on Economic Growth (Gross Domestic Product) with Total Number of listed Equities having a negative (opposite) linear relationship with the Gross Domestic Product. The Durbin-Watson statistics (R 2 = 0.9910 < DW = 1.3686) suggest that the model is not spurious and it is devoid of positive and negative autocorrelation (DW = 1.3686 > d l = 1.07 and DW = 1.5033 < 4 − d u = 2.17). Therefore, it can produce meaningful result when used for forecasting a positive relationship between gross domestic product, all share index and market capitalization with a 99.1% R-square value. Significant Positive connection between all share index, market capitalization, the number of equities and gross domestic product suggests that government policies and bills aimed towards rapid development of the capital market should be initiated. Share Index, Augmented Dickey-Fuller Test, Breusch-Godfrey Test, Serial Correlation Lm Test


Introduction
Capital Market is a financial market involving institutions that deal with securities with a life of more than one year. The Nigerian Capital Market of Nigerian Stock Exchange is a major player in the market for long-term funds. The instruments or securities traded in the capital market are known as capital market instruments. However, the capital market has both securities based segment (i.e. the stock exchange) and non-securities based segment (market for long term loans) [1]. Capital market instruments can be categorized into 3 major groups of securities: preference shares, ordinary shares and debt instruments. Some of the other principal and active market operators in the Nigerian Stock Market include Stockbrokers, Investment Advisers, Issuing Houses, Registrars, Fund Managers, Financial Advisers et cetera [2]. The Nigerian Stock exchange is the center point of the Nigerian Capital Market. It provides a mechanism to mobilize private and public savings as well as making such funds available for productive purposes. The Nigerian Stock Exchange also assists in the allocation of the nation's capital resources amongst numerous competitive alternatives [3]. The stock exchange can also be a mechanism, which can measure and detect the symptoms of an impending economic boom or decline long before the predicted prosperity or decline actually occurs provided the market is either in the semi-strong or strong form of efficiency level. It is good to distinguish the capital market from the Stock Exchange in the sense that the capital market is much wider and bigger than the Stock Exchange. The Stock Exchange is just a participating institution in the capital market albeit it is the most active of all the participants [4] [5]. The activity of the Stock Exchange in the capital market is reflected by the Stock Exchange, which measures the activities on the capital market. The main objectives of the Nigerian Stock Exchange as enunciated in the Memorandum of Association of the company are to create an appropriate mechanism for capital formation and provide efficient allocation of resources among competing alternatives. It is also expected to provide special financing strategies for projects with long term gestation periods [5]. In addition, it helps to maintain discipline in the capital market as far as the participants and the investors are concerned, and as such, assists to broaden the share ownership in the market by providing the enabling environment and to provide and maintain fair prices for securities. The overriding objective of any financial system is the provision of a conducive atmosphere for the transfer of funds from the surplus sector of the economy to the deficit sector [6]. The Capital Market, in the process of carrying out its function, is faced with many challenges such as the effect of economic trends, financial restructuring and reforms by government, industrialization, and technology etc. The Capital Market is thereby required to adapt to the constantly changing trends in the economy. The market in Nigeria has been described as being shallow; this is due mainly to the market float that is very small and is measured by the ratio of securities in the market to the total listed securities outstanding. The challenge that lies ahead is to be able to increase and retain as many of our domestic individual and institutional investors as possible and simultaneously attract foreign ones to the Nigerian Capital Market. This can be achieved by being dynamic, innovative, and having an open mind so that new ideas can be absorbed and put productively in use. The market must be in a position to provide a spectrum of investment alternatives, new trading instruments with which investors can hedge their risk, as well as an environment which is honest that has sufficient structures and where policies are flexible enough to accommodate different investment needs [7] [8] [9] [10]. The Capital market has also been characterized by a number of market failures, one of which is asymmetric information, a situation in which one party to a transaction has less information than the other party. The pervasiveness of this phenomenon greatly undermines the efficiency of financial markets as mechanisms for allocating resources [11] [12] [13]. Because geography and cultural distance complicate the acquisition information, asymmetric information is particularly prevalent globally. While the revolution in information asymmetric is lessened but not eliminated, therefore they are prone to the sharp investor reactions, unpredictable market movements and financial crisis that can occur when information is incomplete and financial markets behave erratically [14] [15] [16] [17]. Thus, in the absence of complete information, investors tend to rush in and out of the markets on rumor. The specific objectives of this paper are to present a working model for the Nigerian Capital Market as it relates to the Nigerian Economic Growth, to examine if Market Capitalization contributes to Economic growth and if the all share index contributes to Nigeria Economic growth.

Materials and Method
The data for this study was extracted from Central Bank of Nigeria Annual reports and Statistical Bulletin (Various Issues) from the National Bureau of Statistics. The time series data cover a period of 1961 to 2017. In an attempt to investigate the impact of the Nigerian stock market on (all share index, market capitalization, and number of equities) Nigerian economy the following models were employed;

Multiple Linear Regression Model and Population Regression Function
The model is specified based on Demirguc-Kunt and Levine (1996) theory on the relationship between stock market earning and economic growth [18].
( ) where; Y 1 is Dependent variable, X 1 , X 2 , …, X k are the Independent variables, e is the error term. Thus, the specific multiple linear regression model is formulated The model be explicitly stated as: On taking natural logarithm of the variables to fit the model, the resulting estimation equation is given as:

Augmented Dickey-Fuller Test
An augmented dickey-fuller test is a test for a unit root in a time series sample [18]. The augmented dickey-fuller statistic, used in this test, is a negative number. The more negative it is, the stronger the rejection of the hypothesis that there is a unit root at some level of confidence.
Testing Procedure Once a value for the test statistic above, is computed it can be compared to the relevant critical value for the Dickey-Fuller Test. If the test statistic is less (this test is non-symmetrical so we do not consider an absolute value) than the (larger negative) critical value, then the null hypothesis of γ = 0 is rejected and no unit root is present [18].

Breusch-Godfrey Test Serial Correlation
The Breusch-Godfrey test is based on the idea of Lagrange multiplier testing, it is sometimes referred to as LM test for serial correlation [18] [19]. It is used to assess the validity of some of the modeling assumptions inherent in applying regression-like models to observed data series. In particular, it tests for the presence of serial dependence that has not been included in the proposed model structure and which, if present, would mean that incorrect conclusions would be drawn [20].
Consider a linear regression of any form, for example where the residuals might follow an ( ) AR p autoregressive scheme, as follows: Breusch and Godfrey proved that, if the following auxiliary regression model is fitted And if the usual 2 R statistic is calculated for this model, then the following asymptotic approximation can be used for the distribution of the test statistic [20]. 2 2 p nR X (9) when the null hypothesis a li pi = holds (that is, there is no serial correlation of any order up to p). Here n is the number of data-points available for the second regression, that for ˆt u where T is the number of observations in the basic series. Note that the value of n depends on the number of lags of the error term (p).

Jarque-Bera Test for Normality
Where n is the number of observations and k is the number of regressors when examining residuals to an equation.
Under the null hypothesis of Homoscedasticity.

1) Statement of Hypothesis
H o : There is unit root in the series.
H 1 : There is no unit root in the series (the series are stationary)

2) Decision Rule
Reject Null Hypothesis if the p-value is less than the level of significance (Figures 1-9).
From Table 1, we can deduce that all the series are stationary at 1%, 5% and 10% level of significance at first difference.
The descriptive statistics Table 2 shows the mean, median, standard deviation, Skewness, kurtosis, and number of observations of all the variables entered.
The correlation matrix shows the nature and strength of the linear association or relationship between all the variables entered [22] (Table 3).          From   Table 3. Correlation matrix [22].   Reject Null Hypothesis if the p-value is less than the level of significance (5%). From Figure 10 we conclude that the residuals follow a normal distribution (i.e. the dependent and independent variables in the model are normally distributed) at 5% level of significance.

Normality Test
The standardized residual graph in Figure 11 shows the standardized residuals of the observations are less than the absolute value of 3, it is considered  Figure10. Jarque Bera test for normality. Figure 11. Standardized residual graph.
that there is no potential outlier in the observations that will distort the relationships and significant tests.

2) Decision Rule:
Reject Null Hypothesis if the p-value is less than the level of significance (5%).
From Table 6, we can deduce that the residuals are not serially correlated at 5% level of significance.

1) Statement of Hypothesis:
Null Hypothesis: Residuals are not Heteroscedastic.

2) Decision Rule:
Reject Null Hypothesis if the p-value is less than the level of significance (5%).
From Tables 7-9, we conclude that the residuals are homoscedastic (i.e. the variance of error or probability distribution of error is the same across all the levels of the independent variables) at 5% level of significance.

Conclusion and Recommendation
This study attempted to assess the impact of Nigerian All Share Index, Market   Table 9. Regression model.  Thus, we recommend that: 1) The collective effort of all stakeholders with the Federal Government leads and creates the positive environment. Also, the oversight function of this Honourable House of Representative will surely provide the required investor's confidence which will positively impact on the market. We should all work hard to ensure that our market is brought back to life by pursuing genuine measures geared towards achieving a robust stock market.
2) The regulatory authority should initiate policies and laws that would encourage more companies and the public to access the market to ensure effective and efficient functioning of the capital market.  days, and other incentives such as Government contracts to make listing attractive to them. The truth is that all these companies are listed in their home countries; why are they refusing to list in Nigeria? In addition, more indigenous quotable companies should be encouraged to seek listing, by giving those incentives like tax holidays, tax rebate and other incentives. This will boost the economy by generating more jobs and government will get more tax revenue. Furthermore, their listing will enhance transparency of financial disclosure in their operations. One incentive that never fails is a policy of Government that ONLY Companies Quoted/Listed on the local Stock Exchange can get Government contracts above certain amount (N2Billion Naira.).