Effect of Contributory Pension Funds on Capital Market Performance in Nigeria

Abstract

Using time series secondary data retrieved from the National Pension Commission and the Nigerian Exchange Group for the periods 2005 Q1 through 2019 Q4, this study explores the effect of contributory pension funds on capital market performance in Nigeria. The study's particular goals were to look into the effect of pension funds investment in government securities, corporate securities, and real estate property in Nigeria on capital market performance. Market capitalization is a proxy for capital market performance. It used an ex post facto research approach, and the data were subjected to a stationarity test, which revealed that they were stationary at first difference. The study uses the Johansen co-integration test to conduct a co-integration test, the results of the cointegration test demonstrated that the variables have a long-term relationship. Pension funds' investments in government and corporate securities have a significant positive effect on capital market performance in Nigeria in both the long and short run, whereas pension funds' investments in real estate property have no significant effect on capital market performance in Nigeria in the long or short run. The study suggests that pension fund investments have had a favorable effect on the expansion of the Nigerian stock market. According to the study, administrators of pension funds should allocate more assets and investments in government securities because they are a less hazardous and safer investment option. In order to expand Nigeria's capital market expansion, pension fund administrators should invest more funds in relatively high corporate debt securities that give high yields, such as banks. Finally, Nigerian Pension Fund Administrators should gradually lower their investment exposure to real estate property, as our study has indicated that investing in real estate property has not benefited Nigeria's capital market performance.