LONG-RUN RELATIONSHIP BETWEEN PENSION FUNDS AND CAPITAL MARKET IN NIGERIA

BY

Abdul ADAMU1 uooba1009@gmail.com

&

Barnabas E. BARDE2
Department of Business Administration Nasarawa State University, Keffi Nasarawa State Nigeria.

ABSTRACT The Pension Reform Act 2004 is the most recent legislation by the Federal Government of Nigeria to address the problem in the pension system in the country. By this Act, the pension system is changed from a Defined Benefits to a Defined Contributory scheme where employees and their employers are expected to pay a certain percentage of the employees monthly emoluments to a Retirement Saving Account, from which they would be drawing their pension benefits after retirement. This saving account will be invested on behalf of the employees and one of such avenue for investment is the capital market. Thus, this study examines the impact of pension funds on capital market development in Nigeria using monthly data of pension investments and market capitalization between 2007 and 2009. We employed Johansen cointegration test to test for long-run relationship between these data and OLS to examine the impact on pension fund on capital market. The finding shows that there is a long-run relationship between pension reform and capital market development and also that pension fund has a positive impact on capital market development. We recommend that there should be willingness to modify the regulation of capital market as may be necessary in order to protect pension investment. Keywords: Pension reform, Capital Market, cointegration, Defined Contribution, Defined Benefits, investment, market capitalization

Adamu is a Lecturer in the Department of Business Administration, Nasarawa State University, Keffi Nigeria. Barde is a Senior Lecturer in the Department of Business Administration, Nasarawa State University, Keffi Nigeria.