African Journal of
Business Management

  • Abbreviation: Afr. J. Bus. Manage.
  • Language: English
  • ISSN: 1993-8233
  • DOI: 10.5897/AJBM
  • Start Year: 2007
  • Published Articles: 4196

Full Length Research Paper

Interest rate, capital market and pensions management: Lessons from Nigeria

Patrick Omoruyi Eke*
  • Patrick Omoruyi Eke*
  • Department of Banking and Finance, Lagos State University, Ojo, Lagos State, Nigeria.
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Akinwunmi Kunle Onafalujo
  • Akinwunmi Kunle Onafalujo
  • Department of Insurance, Lagos State University, Ojo, Lagos State, Nigeria.
  • Google Scholar


  •  Received: 15 April 2015
  •  Accepted: 20 June 2015
  •  Published: 16 July 2015

Abstract

This paper examines empirically the causal relationship between interest rate, capital market, and pension assets in Nigeria from 1981-2013. While literature provides preponderant evidence of transmission from pension asset to capital market growth, little evidence is available of the reverse and the interaction with interest rate. The 2014 Pension Act widens the scope of pension fund investments into real estate and infrastructure markets, which hitherto are interest rate sensitive. Nigeria’s high short-term interest rate regime attracts long-term funds and can make the capital market volatile, which might pose systemic risks to pension assets. Using ordinary least square (OLS) regression technique in a recursive system, the study reveals that pension asset is directly sensitive to stock market Index, while the index is inversely sensitive to short term interest rate, implying that the high short term interest rate regime might be inimical to building ‘wholesome’ pension assets of the capital market. The study suggests that monetary and fiscal authorities should manage short-term interest rate to optimal lower rate to attract pension assets to the capital market, making the capital market to operate at lower volatility conducive for bi-directional growth.

Key words: Capital market, interest rate, pensions, recursive system. 

Abbreviation

JEL Code: G12 E43 J32 C21