E ISSN: 2583-049X

International Journal of Advanced Multidisciplinary Research and Studies

Volume 3, Issue 2, 2023

Effect of Financial Intermediation on Capital Market in Nigeria

Author(s): Miftahu Idris, Abdullahi Hammayaji


This study examined the effect of financial intermediation on the performance of capital market in Nigeria using an annual data spanning 1986 to 2022. Some selected techniques comprising of ADF test, Johansen cointegration, vector error correction mechanism, and Granger causality test were adopted and employed to analyze the behavior of the variables. Findings show that two co-integrating equations exist amid the study’s chosen variables, a connotation that these indicators are connected in the long term. The study also revealed that in the long run inflation and Gross Domestic Product significantly mold equity returns in a negative and positive way in that order contrary to foreign exchange reserve which insignificantly shapes equity indices. Furthermore, a 9.8% speed of adjustment is observed when variables experience some shocks in the short term that disturb long run equilibrium. In addition, changes in Gross Domestic Product, inflation and foreign exchange reserves may explain about 35% fluctuations in stock prices. More so, none of the study variables granger cause share prices indicating that these variables are not the leading indicators in estimating or predicting capital market performance in Nigeria. To reduce uncertainties and ensure policy transparency in financial intermediations in Nigeria, government should lessen the inflationary expectations by providing an implicit commitment mechanism on the part of the Central Bank towards price stability. This makes the policy to become more credible and the public can form expectations that are closer to the policy targets.

Keywords: Financial Intermediation, Capital Market, Cointegration Model, Error Correction Mechanism, Granger Causality Test

Pages: 969-979

Download Full Article: Click Here