Stock Prices and Consumption: Sub-Sahara African Experience

  •  Lukman Oyelami    
  •  Ebenezer Akinkoye    
  •  Emmanuel Dunmade    


This paper investigates the effect of stock market variables on consumption growth in 12 selected sub-Saharan African countries within the period 1988–2012 using dynamic panel estimation techniques. Specifically, we examine if consumption growth is in any way being influenced by stock returns and dividend yield. While the use of returns determines the existence of a wealth, dividend yield shows how consumption is affected by short-term disequilibrium of prices from fundamental value. Having critically examined the econometric properties of our data, the results from dynamic panel estimation support a significant direct relationship between stock price (returns) and consumption growth which implies the existence of wealth effect. Similarly, the results indicate insignificant positive relationship between the dividend yield and consumption growth which implies that bubbles in the market can increase consumption but with fear of future bust. Overall, we argue that consumption growth can be influenced by stock price (returns), thus policy-maker in the sub-region can leverage on this link to stimulate economic growth.

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