Author(s): Busayo Aderounmu, Philip Olomola, Sunday Oladeji, Victoria Okafor, Oluwarotimi Owolabi, Oluranti Olurinola
Asset pricing is a crucial issue in financial economics as it provides information that prompts the decision as to whether to undertake investment as well as consumption. The understanding of how equity returns affect consumption and investment thus need to be investigated, hence the study. The study examined the effects of equity return on consumption and investment in risky assets using monthly data for a period of 1999-2014. The generalized method of moments (GMM) estimation technique was adopted in this study. This paper established that per capita income, past values of consumption growth, stock market wealth influences the growth of consumption per capita positively while lending rate and U.S interest rate had negative effects on the growth rate of consumption in Nigeria. Also, past values of investment in risky assets and the risk-free rate of returns significantly and negatively affect investment in risky assets while the lending rate and U.S interest rate had a negative relationship with investment in risky assets although the effects were not statistically significant. Though market returns had a positive and significant relationship with investment in risky assets, per capita income positively but insignificantly affect investment in risky assets. Therefore, the empirical analysis of the effects of equity return on consumption showed a positive relationship exists although not statistically significant while the effects of equity return on investment were positive and statistically significant.