Financial Sector Liberalisation and Capital Market Growth in Nigeria

Abstract

The study examined financial sector liberalisation and capital market growth in Nigeria from 1985 to 2021 with secondary data sourced from the Central Bank of Nigeria Statistical Bulletin. The two formulated hypotheses were tested with the Augmented Dickey-Fuller (ADF) and error correction mechanism. Findings from the study revealed that broad money supply and credit to private sector have a positive and significant effect on both market capitalisation and volume of transactions. Also, cash reserve requirements and exchange rate have negative and significant effects on both market capitalisation and volume of transactions. Interest rates have significant and positive effects on market capitalisation and significant negative effects on volume of stock transactions. Foreign direct investment has a positive and insignificant effect on market capitalisation and volume of transactions. The study recommended that the monetary authority in Nigeria must continually improve the monetary policy to control the money supply in the economy and reduce the interest rate to enhance capital market expansion. Also, the Nigerian government should encourage more exports to create a positive relationship between exchange rate and stock prices. This will make local currency depreciate and local firms will become more competitive, leading to an increase in stock prices.