AN EMPIRICAL ANALYSIS OF THE LAW OF DEMAND IN THE NIGERIAN CAPITAL MARKET (1985-2020)

Abstract

This study tests the applicability of the law of demand in the Nigerian capital market by analyzing annual time series data between 1985 and 2020. We specifically evaluated the nexus between price and quantity (unit) of securities demanded in the Nigerian stock market by applying Toda-Yamamoto Granger causality technique and Vector Autoregression (VAR) model. The study is based on ex-post facto research design. The annual time series data used in the study were obtained from Central Bank of Nigeria (2020)’s statistical bulletin. From the VAR analysis, we found that stock price exerts positive and significant effect on the quantity of securities traded in the Nigerian capital market. However, quantity of securities demanded is negatively signed but not a significant predictor of prices of securities demanded in the Nigerian capital market. Also found in this study is a unidirectional causality flow from price to quantity demanded in the Nigerian Stock Exchange. It can therefore be asserted that there is a short-run unidirectional causality flowing from price to quantity of securities traded in the Nigerian capital market. Going by the positive coefficient of price (26.91891), our finding is not in tandem with the law of demand which states that there is an inverse relationship between price and quantity demanded. Rather than inverse relationship, this study provides evidence of a direct (positive) association between price and quantity demanded in the Nigerian capital market. In other words, the higher the price, the more the quantity of securities demanded in the Nigerian capital market, suggesting a situation of abnormal demand.