The Nigerian Capital Market and Selected Macroeconomic Variables: An Econometric Analysis

Capital market is the major components of a modern market-based economic system as they serve as the channel for the flow of long-term financial resources from the savers of capital to the borrowers of capital. Efficient capital markets are hence essential for economic growth and prosperity. Hence this study using econometric analysis investigated the effects of some key macroeconomic variables on the Nigerian Capital Market. Secondary data sourced from Central Bank of Nigerian (CBN) Statistical Bulletin from 1981 – 2019 were employed. The data was checked for stationarity using the Unit Root Test and OLS regression analysis (through E-view package) was carried out to achieve the objective of the study. All the variables were integrated of order 1(1) except Inflation rate (INFR) that was integrated of order 1(0), therefore we ran the regression following the order of integration. The regression result depicted that, all the variables were rightly signed. However, only Money supply (MNSY) had significant relationship with market capitalization (MKCN) – proxy of Capital Market. The result is acceptable though the joint effect of the explanatory variables (R2 Adjusted = 0.48) on capital market is not so high but from the Durbin-watson statistic there is no existence of autocorrelation in the model. The study concluded that, the relationship between the selected key macroeconomic variables and the Capital Market was not strong by the time of this study, but could be improved through appropriate policies of the Government. We therefore recommend among other things that government promote policies that will encourage industrial production as this may improve the performance of some macroeconomic variables that affect the growth of the Capital Market