Interest Rate Variations and Stock Market Capitalization in Nigeria: An Empirical Analysis

In most economies, variations in interest rates have become a prominent feature both in the long-run and short-run. This study thus examines by means of robust analysis, the effect of the variations in interest rates on the level of stock market capitalization in Nigeria for a period of 29 years (1981 – 2009). Data was obtained from the statistical bulletin of the Central Bank of Nigeria (CBN) for the relevant years. The analysis of the data obtained was done with the Ordinary Least Square (OLS) method. The results from the study showed that variations in interest rate significantly affect the level of stock market capitalization, thereby suggesting that there is a significant relationship between interest rate variation and the level of stock market capitalization in Nigeria for the period under study. Based on the above, it was recommended that the Government of Nigeria and the appropriate monetary authorities should continue to give serious attention to policies geared towards lending rate in the country, if a desired level of market capitalization must be achieved.