Impact of Portfolio Risk on Capital Market Development in Nigeria

Abstract

This study titled “Impact of Portfolio Risk on Capital Market Development in Nigeria” empirically examined the impact of systematic risk on capital market capitalization in Nigeria from 1986-2020. Time series data and econometric tools were used to test for the stationarity and causality effect. Auto Regressive Distributed Lag Model (ARDL) and Error Correction Model (ECM) techniques were used to examine the short run and long run impact and relationship between Portfolio Risk and Annual Capital Market Capitalization in Nigeria (ACMCN). The study revealed that both in the long run and short run Inflation Rate (INFR)had positive relation with Annual Capital Market Capitalization in Nigeria (ACMCN) and it was statistically significant in explaining changes in Annual Capital Market Capitalization in Nigeria (ACMCN). On the other hand, at long and short run, Interest Rate in Nigeria (INTR)had negative relation with Annual Capital Market Capitalization in Nigeria (ACMCN) and it was statistically insignificant in explaining changes in Annual Capital Market Capitalization in Nigeria (ACMCN). Therefore, the study recommends that government should improve the efficiency and effectiveness of portfolio risk management in Nigeria since it was statistically significant in determining the improvement of Annual Capital Market Capitalization in Nigeria (ACMCN), it should manage the activities relating to Inflation Rate (INFR) through targeting policies in order (for them to be significant and relevant as monetary policy tools) to encouraging the Annual Capital Market Capitalization in Nigeria. Also, it is recommended that regulatory bodies such as Central Bank, tax authorities among other to create investment friendly climate such easy access to loan at low interest rate and tax holiday and avoid multiple tax regime as in Nigeria where the Federal, State, and Local government impose tax on nearly the same tax field.