NIGERIA EXCHANGE GROUP PERFORMANCE AND FINANCIAL SECTOR DEVELOPMENT IN NIGERIA

ABSTRACT This study investigates the relationship, correlation, and direction of causality between the performance of Nigerian Exchange Group (SMP) and financial sector development (FSD) in Nigeria, while emphasizing the interplay of Inflation rate as a control variable over a 31-year sample period from 1993 to 2023. Employing econometric methodologies, including correlation analysis, Autoregressive Distributed Lag (ARDL) bounds testing, and Granger causality tests, the study assessed the nexus between FSD (proxied by Financial Development index) and SMP (proxied by Market Capitalization (% of Gross Domestic Product)). Findings indicate a significant positive correlation between NGX performance and FSD, with a coefficient of 0.617 and a p-value of 0.0002, suggesting that as the NGX performance improve, the financial sector tend to develop. Furthermore, the ARDL bounds test yields an F-statistic of 9.43, surpassing critical values, confirming a long-run relationship. Short-run estimation reveals a negatively significant cointegration equation (CointEq(-1)), indicating that deviations from the long-run equilibrium are significantly corrected in the short run at a pace of 96%. In the long run, however, the coefficient for SMP becomes 0.002721, significant at the 5% level (p-value = 0.0001), suggesting a positive long-term relationship between Nigerian Exchange Group performance and financial sector development. Also, the Granger causality test reveal no significant causality in either direction, with p-values of 0.1329 for SMP and 0.8132 for INFL. The study concludes that while correlation and a long-run relationship exist, the direction of causality between the variables does not exists. Consequently, recommendations for policymakers include strengthening financial sector policies and promoting sustainable financial products in the NGX.