Pension Fund Investments And Capital Market Performance In Nigeria

GODSON OKEZIE | 95 pages (36491 words) | Dissertations
Banking and Finance | Co Authors: MBAGWU


Over the years there has been rapid reform and amendments from 15% to 18% contribution of pension fund scheme from the defined benefit to contributory pension fund scheme. The delay in the reform had resulted to decline in the volume of funds available in the capital market which in turn affects capital market performance. Hence the broad objective of this study focused on the impact of pension fund investments on capital marketperformance in Nigeria, from January, 2013 to April, 2021 being the period under review. To achieve this, the study adopted a monthly data of pension fund investment in domestic ordinary shares, pension fund investment in Federal government bonds, pension fund investment in foreign ordinary shares and pension fund investment on corporate bonds and capital market performance proxied by All share index.  Monthly time series data from January, 2013 to April, 2021 were sourced from National Pension Commission monthly report and Nigerian Stock Exchange fact book. The study employed Vector Error Correction Model to test the hypotheses. The findings established that, pension fund investment in domestic ordinary shares had a statistically positive and significant impact on All shares index in the short–run and a statistically significant impact in the long - run, pension fund investment in Federal government bonds had no  significant impact on All shares index in the short- run but had a positive and  significant impact on All shares index in the long- run, pension fund investment in foreign ordinary shares had no  significant impact on All shares index in  the short –run but statistically significant in the long- run and  pension fund investment in corporate bonds had no significant impact on All shares index  in the  short –run but had a significant impact in the long-run on All shares index. In line with the above findings, the study concluded that, investments of pension fund contributions in ordinary shares, Federal government bonds, foreign ordinary shares and corporate bonds in the long-run immensely contributed to capital market performance in Nigeria. On the basis of the findings, the study therefore, recommended that, management of pension fund contribution should select invest outlets that stand out to yield higher dividends and returns on investment as these lead to increase in fund available  in the capital market and create more wealth for the contributors of pension fund..It is also necessary that government establish policies that will result to more contribution of pension fund by way of increasing the rate of contribution paid by the employers of labour. This will bring about increase in volume of fund available for investment in the capital market for investor to borrow to carry out developmental projects. National Pension Commission, bearing in mind the core essence of establishing pension fund scheme-to make pension fund contribution available to the pensioner as at when due. Therefore, it is important that National Pension Commission to regularly monitor the legality and viability of institutions jostling to borrow pension fund contribution or have pension fund contribution invested in equity(shares) market as to avoid loss of contributors funds. It is needful for the National Pension Commission to introduce more investment outlets in the capital market as this will result to investors making better choice of investment outlets and spread of risk and to reduce loss of pension contributions when restricted to few investment outlets. Also necessary to supervise the financial accounts or reports of PPFAs,CPFAs and PFCs on monthly basis as to avoid pension fund contribution meant for investment been misappropriated to poor performance of capital market due to inadequate fund.


Title Page                                                                                                                                i

Certification                                                                                                                            ii

Dedication                                                                                                                               iii

Declaration                                                                                                                              iv        

Acknowledgements                                                                                                                v

Table of Contents                                                                                                                   vi

Abstract                                                                                                                                  x


1.1  Background to the Study                                                                                                 1

1.2  Statement of the Problem                                                                                                 11

1.3  Objectives of the Study                                                                                                    12

1.4  Research Questions                                                                                                           12

1.5  Statement of the Hypotheses                                                                                            13

1.6  Significance of the Study                                                                                                 13

1.7  Scope of the Study                                                                                                           15

1.8  Limitations of the Study                                                                                                   15

1.9  Operational Definition of Terms                                                                                       16


2.1 Conceptual Framework                                                                                                     20

2.1.1 Concept of capital market activities                                                                              24

2.1.2 Emergence and development of pension fund scheme in Nigeria                                 24

2.1.3 The challenges of the old pension scheme                                                                     27 Poorly funded                                                                                                             28 Weak administration of the old pension scheme                                                        28 Poor framework                                                                                                          29

2.1.4 The beginning of new pension scheme in Nigeria                                                         30

2.1.5 The national pension commission                                                                                  31 Pension fund administrators                                                                                       32 Pension fund custodians                                                                                             32 The closed pension fund administrators                                                                     32

2.1.6 Features of compulsory or contributory pension scheme                                               33

2.1.7 Amendment of pension reform act 2004 in 2011, 2012, and 2014                               33

2.1.8 Upward review of the punishment, penalties or sanctions                                            34

2.1.9 Increase in rate of pension contribution of participants                                                 35

2.1.10 Accessibility of benefits in event of loss of job                                                           35

2.1.11 Opening of retirement savings account                                                                       36

2.1.12 Challenges of the new pension scheme                                                                       36         

2.1.13 Pension and operation of pension fund contribution                                                   37

2.1.14 Financial markets                                                                                                         43

2.1.15 The money market                                                                                                       44

2.1.16 The place of the stock market                                                                                      45

2.1.17 The Nigerian stock exchange or market                                                                       45

2.1.18 The bond  market                                                                                                         47

2.1.19 Equity market                                                                                                  48

2.1.20The pension fund investment guidelines                                                                      49

2.1.21. Equities pension fund                                                                                                 50

2.1.22 Private equity funds                                                                                         50

2.1.23 Bonds   pension fund                                                                                                   50

2.2 Theoretical Framework                                                                                                     51

2.2.1 Permanent income hypothesis theory                                                                            51

2.2.2 The theory of pooling                                                                                                    52

2.2.3 The life-cycle theory      53

2.3 Empirical Review of Literature    56

2.4 Summary of Reviewed Empirical Literature        71

2.5 Research Gap                                                                                                                    82


3.1 Research Design                                                                                                               84

3.2Area of Study        84

3.3 Sources of Data    85

3.4 Description of Model Variables    85

3.4.1 Dependent variable        85

3.4.2 Independent variables    86

3.5 Model Specification          88

3.5.1 Apriori expectation                                                                                                        90

3.6 Method of Data Analysis 90


4.1 Presentation of Data                                                                                             95

4.2 Data Analysis        95

4.2.1 Descriptive statistic        95

4.2.2 Unit root test      96

4.2.3 Lag order selection criteria (ASII)                                                                                 97

4.2.4Optimal length selection criteria(DOSS)            98

4.2.5Optimal length selection criteria(FGBS) 98

4.2.8 Optimal length selection criteria(FORS)           99

4.2.7 Optimal Length selection criteria(CRBS)          100

4.2.8Cointegration test                       100

4.2.8. Johansen cointegration test result                     101

4.2.9 VECM                                                                                                                           102

4.3 Test of Hypotheses                       106

4.4 Discussion of Findings                 109


5.1 Summary                                                                                                                            111

5.2 Conclusion                                                                                                                         112

5.3 Recommendations                                                                                                             112

5.4 Contribution to Knowledge                                                                                               113

5.5 Suggested Area for Further Research                                                                               114

      References                                                                                                                         115

      Appendices                                                                                                                        125






4.2 Descriptive Statistic          95

4.2.3 Unit Root Test               96

4.2.4.Optimal length selection criteria(DOSS)                       97

4.2.5 Optimal length selection criteria(FGBS)                       98

4.2.6Optimal length selection criteria(FORS)            98

4.2.7OptimallLength selection criteria(CRBS)                       99

4.2.8 Johansncointegration test result             101

4.2.9 VECM  Results              102




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GODSON, O (2023). Pension Fund Investments And Capital Market Performance In Nigeria. Retrieved Nov 30, 2023, from

MLA 8th

OKEZIE, GODSON. "Pension Fund Investments And Capital Market Performance In Nigeria", 10 Aug. 2023, Accessed 30 Nov. 2023.


OKEZIE, GODSON. "Pension Fund Investments And Capital Market Performance In Nigeria".,, 10 Aug. 2023. Web. 30 Nov. 2023. < >.


OKEZIE, GODSON. "Pension Fund Investments And Capital Market Performance In Nigeria" (2023). Accessed 30 Nov. 2023.

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