Pension Fund Investments and Capital Market Development in Nigeria: The Moderating Role of Inflation

Abstract

Pension fund investment is a significant source of finance for the capital market in Nigeria. It increases the availability of funds for firms to acquire for expansion, stimulating economic growth and development. However, high inflation rates can have a negative impact on the effectiveness of pension fund investment in the capital market in Nigeria. This study investigates whether inflation enhances or reduces the effect of pension fund investment on capital market development in Nigeria. Monthly time series data from January 2013 to February 2020 were utilized using the ARDL model. The findings revealed that pension fund investments have a long- and short-run effect on capital market development in Nigeria. Our study also established that inflation reduces the negative impact of total domestic debt securities on total market capitalization both in the long- and short-run, which is the novelty of this study. The study contributes to the Modern Portfolio Theory, thereby establishing the role of inflation in determining the effect of pension fund investment on capital market development in Nigeria. JEL Classification G10, G23