Pension Fund Investment and Capital Market in Nigeria

Abstract

The paper examines the dynamic and causal relationship between pension fund investment and capital market development in Nigeria. The paper employed the Autoregressive distributed lag model to estimate the cointegration relationship between the variables. The results indicate that in the long-run, the impact of local ordinary share (LOC) on total market capitalization was positive and statistically significant while Pension fund investment asset (PFI) and monetary policy rate (MPR) were positive and statistically insignificant. Also, when the total value of shares traded was used as a measure of capital market development, the results indicate that increase in lag one and lag three of the total value of stock traded and lag one of pension fund investment results in an increase in the total value of stock traded. In terms of which variable granger causes the other, the results indicate that none of the variable Granger causes each other meaning that both variables (Pension fund investment and Market Capitalization) are determined independently. That is, neither pension fund investment causes total market capitalization nor Total Market Capitalization granger cause Pension fund investment. Based on the findings of the study the paper, therefore, concludes that over the years the investment of pension funds into the capital market has assisted to engender the development of the Nigeria Capital market. The paper recommends that more pension fund investment should be channeled to the capital market to develop and strengthen the Nigerian capital market and make the market more competitive.