PUBLIC DEBT DRIVERS AND STOCK MARKET PERFORMANCE IN NIGERIA

Abstract

This paper examines how public debt and inflation impact stock market performance in Nigeria between 1990-2024. The research design was ex-post facto, annual data was obtained from Central Bank of Nigeria, using Autoregressive Distributed Lag (ARDL). The short-run ARDL findings show that the evolution of domestic debt has a negative effect on the stock market which means that high domestic debt amounts could crowd out the internal investment and diminish investor confidence. Conversely, fluctuations in the external debt have a positive effect on the performance of the stock market in the short run but at a minor scale. External debt has a very high positive influence on the stock market performance in the long run, which reflects the fact that the externally sourced funds when managed and invested in productive economic activities can contribute to the growth of the markets and the increase in the financial stability. Domestic debt, though, still has a negative long-run pressure but the inflation is of not much signification in both periods hence limited direct influence on the stock market. The research proposes effective debt management, focus on productive external borrowing and policies that enhance investor confidence so as to promote sustainable market growth.