PENSION FUND INVESTMENTS AND MARKET LIQUIDITY IN THE NIGERIAN CAPITAL MARKET

Abstract

Despite the growing importance of the relationship between pension fund investment and market liquidity in the Nigerian capital market, it still remains under-researched in the academic literature. As a result, this study examines the impact of pension funds (PFIs) on market liquidity in the Nigerian capital market from 2004 to 2023, using an ex-post facto research design. The analysis uses an autoregressive distributed lag (ARDL) model and multiple regression with an error correction mechanism (ECM) to examine the effects of different PFIs, including pension fund assets (PFAs), pension fund investments in shares (PFIEs) and pension fund investments. in government securities (PFIGS), on key liquidity indicators such as turnover indicators and gross domestic product growth rate (GDPGR). The findings reveal that both PFA and PFIE significantly increase market liquidity, supporting liquidity preference and portfolio theory. Conversely, PFIGS shows no significant impact on market liquidity, suggesting that government securities may not be as effective in stimulating market activity. Based on these results, the study recommends that policymakers encourage pension fund managers to diversify their portfolios by including a wider range of asset classes, especially equities, while reconsidering the heavy reliance on government securities. The aim of these recommendations is to optimize the role of pension funds in managing economic development and market stability. The study contributes valuable insights to the theoretical discourse on liquidity and portfolio management and provides practical guidance for enhancing the efficiency and resilience of the Nigerian capital market