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Abstract

This research work examines the performances and the impact of interest rate on stock market capitalization. Time series data from year 1985-2013 was obtained from the Central Bank of Nigeria (CBN) and the Nigerian Stock Exchange (NSE). The data was analyzed using and time series analyses. The analyses show that an inverse relationship exists between interest rate and stock market capitalization, while the hypothesis tested shows that the impact of interest rate is significant on stock market capitalization such that for every unit increase in the interest rate, the stock market capitalization is reduced by about ₦685 billion – this implies that the rate of interest has a very serious implication on the performance. The findings from time series analysis however revealed that over the last decade of the period under review the Nigeria Stock Exchange (NSE) experienced a steady growth of 26% increase per year in market capitalization. By way of extrapolation, a market capitalization of about ₦53,334.4billion is predicted to be recorded by the end of year 2017. It is therefore recommended that the Central Bank of Nigeria (CBN) should formulate and use policy statements that will maintain interest rate in order to encourage high stock market patronage for economic growth. Also, the Nigerian Stock Exchange (NSE) should engage in public enlightenment and improve on corporate governance framework to encourage more investment and improve transactions in the market. The government should ensure economic and political stability that will encourage capital inflow and reduce external debt so as to lead the economy to the next stage of growth.

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