IMPACT OF FISCAL POLICY ON ASSET PRICES

ABSTRACT

This research was designed to investigate the impact of fiscal policy and asset prices; an empirical investigation. A time series data of the all share price index as proxy for asset prices and the various sectoral expenditure on agriculture, education, transport/communication and the government recurrent and capital expenditures from 1985-2014 were sourced from secondary sources and was subjected to a multi regression analysis using the ordinary least square (OLS) estimator at 5% level of significance with the all share price index as the dependent variable. The results from the analysis showed that there exists a positive and statistically significant relationship between government expenditure on education and government recurrent expenditure and asset prices; that government expenditure on agriculture has a negative relationship but not statistically significant with asset prices, and that  there exists a positive relationship between governments spending on transport/communication and total government capital expenditures and asset prices but also not statistically significant and this findings is in line with other empirical studies such as Ardagna (2009), Fransisco and Alexander (2011); Luca and Richardo (2011) etc. The study therefore recommended that, Special attention should be given to the agricultural sector to ensure that funds disbursed from government purse are well managed and used for profitable ventures and that agriculturists should be trained to understand the benefits of the stock market and thus, they should be sensitized to invest in the stock market.

TABLE OF CONTENTS

Title Page                                                                                      i

Declaration                                                                                  ii

Certification                                                                                iii

Dedication                                                                                  iv

Acknowledgment                                                                        v

Abstract                                                                                     vi

Table of Contents                                                                      vii

CHAPTER ONE

INTRODUCTION

1.1   Background to the Study                                                   1

1.2   Statement of Problem                                                        5

1.3   Objective of the Study                                                        7

1.4   Research Question                                                             8

1.5   Research Hypothesis                                                                 9

1.6   Significance of                                                                           10

1.7   Scope of the Study                                                             11

1.8   Limitation of the Study                                                      12

1.9   Definition of Terms                                                            13

1.10Organization of the Study                                                         14

References                                                                                 16

CHAPTER TWO

REVIEW OF RELATED LITERATURE

2.1 Theoretical Framework                                                      18

2.1.1 Theories of Asset Pricing                                                 18

2.1.2 Theories of fiscal policy                                                   23

2.1.3 Theories of government expenditures                             25

2.2   Conceptual Framework                                                    28

2.2.1 Link between Fiscal Policy and Asset Prices                   28

2.2.2 Concept of Fiscal Policy                                                  30

2.2.3 Government Spending                                                    31

2.2.4 Taxation                                                                         32

2.2.5 Fiscal Policy in Nigeria                                                    34

2.2.6 Asset Pricing                                                                   36

2.3 Empirical Review                                                                       37

2.4 Gap in Literature                                                               42

References                                                                               44

CHAPTER THREE

RESEARCH METHODOLOGY                                        

3.0   Introduction                                                                     48

3.1   Research Design                                                              48

3.2   Population of the Study                                                   49   

3.3   Sample Size                                                                     49

3.4   Data Collection Techniques                                             49

3.5   Operational Measures of Variables                                  50

3.6   Model Specification                                                        51

3.6   Method of Data Analysis                                                  53

3.7   Justification of the Model                                                        54

References                                                                               55

CHAPTER FOUR

DATA PRESENTATION AND ANALYSIS

4.1   Introduction                                                                     56

4.2   Data Presentation                                                            56

4.3   Presentation of Result and Interpretation                                57

4.3.1        Presentation Result 1                                                     61

4.3.2        Discussion of Findings                                                    58

4.3.3        Presentation of Result 2                                                   60

4.3.4Discussion of Finding                                                      61

4.4   Hypothesis Testing                                                          62

CHAPTER FIVE

SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATION

5.1   Summary of Findings                                                      65

5.2   Conclusion                                                                      66

5.3   Recommendations                                                           68

Bibliography                                                                            69

Appendices                                                                              70