Financial Development and Capital Market Performance in Nigeria

Abstract

Financial development and capital market performance are widely recognized as mutually reinforcing components of economic growth. However, in Nigeria, this relationship has been constrained by persistent macroeconomic instability, structural inefficiencies, and institutional weaknesses. Despite various financial sector reforms, the Nigerian capital market continues to experience volatility, raising concerns about the effectiveness of financial development in enhancing market performance. This study examines the nexus between financial development and capital market performance in Nigeria during the period 2019–2025. The primary objective of this study is to assess the impact of financial development on capital market performance in Nigeria. Specifically, it seeks to examine how financial development influences market size and liquidity indicators, while also evaluating the roles of key macroeconomic variables such as inflation, exchange rate, and interest rate spread in shaping capital market outcomes. The study employs market capitalization, All Share Index, value of transactions, and turnover ratio as proxies for capital market performance. Due to limited availability of consistent financial development data, real gross domestic product (RGDP) is used as a proxy for financial development.