Journal of Emerging Trends in Economics and Management Sciences: Home

Abstract:
Capital market provides the industries and governments long term funds to meet their long term capital requirement such as financing of fixed investment like buildings, plants, machinery, bridges, e.t.c. Therefore, despite all these enormous performance, capital market still faces setback in the economy. Capital market that has been performing enormously in its operation is invariably affected by the level of inflation in Nigeria. The study empirically examines the effect of inflation on capital market performance in Nigeria. In line with the objectives of this study, secondary data were obtained from central bank of Nigeria statistical bulletin and Security exchange commission (SEC) covering the period of 1970 to 2010.Multiple regressions were employed to analyze data on variables such as inflation rate, market capitalisation, All-Share index, market volume and market turnover, and Gross Domestic Product with the adjusted R2 which significant at 0.1821(18.2%), it presages that inflation accounted for 18.2% of the variation in the influence of the capital market performance. The effect of inflation on performance of Nigerian capital market is weak. All the measures showed a negative relationship to inflation except MVOL which showed a deviation from a priori expectation as revealed by the positive correlation between inflation and the market volume. It is therefore concluded that there is a negative relationship between inflation and capital market performance. The result suggest that the Central Bank of Nigeria (CBN) should design and implement policy instruments that will maintain inflation at a reasonably low level so that it will not wear away the real value of stock returns.

Keywords: capital market performance; market capitalization; determinants; inflation; economic growth

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