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The role of the capital market in the revolutionization of the economy cannot be over emphasize especially when one considers the high level of financial intermediation it conducts as regards its role in channeling funds in large amount from surplus areas to deficit areas.




The role of the capital market in the revolutionisation of the economy cannot be over emphasize especially when one considers the high level of financial intermediation it conducts as regards its role in channeling funds in large amount from surplus areas to deficit areas. The capital market refers to the market trading in medium and long term financial instrument with maturities which exceeds one year. In other words, it is the market that enables government and companies to raise long term capital with ease by issuing securities. According to Gaumnitz and Duagau, (2002), the capital market is a “complex of institutions and mechanisms through which intermediate funds and long term funds are pooled and made available to businesses, government and individuals and instrument already outstanding are transferred”. The capital market provides the wherewithal for the growth of the economy and development programme and serves as an indicator of the economy’s liquidity and general performance (Osaze, 2002). Anyanwu (1999) defined the capital market as a market for the mobilization and utilization of long term funds for development. It can also be defined as that market were medium and long term loan stock are either bought or sold for investment and infrastructural development projects by business and government. The capital market is sometimes referred to as the equity market. This is because the instrument with which the capital market operates is referred to as the equities, which comprises of shares debentures and development stocks etc. Equity on the other hand is an instrument or documentation evidencing and investment made by a party and constituting a future claim against the former by the latter payable at maturity. Alice and Anao (2000) defined equity or security as documentary evidence of ownership or entitlement to claim upon the assets of the issuing organization which may be a business, firm, government or a quasi government market instruments to be ranked as equities. These equity instruments include commercial papers, short term treasury bills and treasury certificates (Ugorji, 2002). Capital market includes a whole complete set of institutions and procedures for providing intermediate and long term funds to fund users (Ugorji, 2002). In other words, capital market plays a vital role in capital formation which is necessary for the development of an economy. Hence, capital market is a prime motor that drives an economy on its path to growth and development because it is responsible for long term growth capital formation, (Osaze, 2002). The capital market in Nigeria deals with long term securities such as equities, federal government development stocks, state and local government bonds, corporate bonds etc. which are used to mobilize funds that would be held by users for a considerable length of time or in perpetuity (Edo, 2003). The capital market is sometimes referred to as the security market. This is because the instrument with which the capital market operates is referred to as securities, which comprises of shares, equities, development stocks etc. Equity purchase ahs to do with the buying and selling of equities or shares in the capital market. The equity capital market is an important part of the capital market. In this market, companies and financial institutions raise funds and provide equities using the company by purchasing the shares or equities. Company stocks are the prime financial instrument of the equity capital market. This instrument is provided and maintained by the companies or the financial institutions themselves. The reputation of the stocks in the equity capital market is largely dependent on the companies themselves, because of the fact that it is maintained by different types of financial data provided by the companies. The provided data helps the investor understand the present position and the future of the company in the equity capital market. The equity capital market and the debt capital market together form the capital market. The primary difference between the equity capital market and the debt capital market is the amount of risk and return related to them. The equity capital market is known for its huge returns and it high risks. On the other hand, the debt capital market is far more secure than the equity market but the returns are low. Hence, the role of equity purchase in the capital market cannot be over emphasized. The Nigerian Stock Exchange (NSE) is the heart of the capital market in Nigeria. It was initially know as Logos Stock Exchange (LSE). Trading on securities take place here. It’s an emerging market which commenced operations in September, 1962 in response to the need for a stock market in Nigeria (Osaze, 2002). Before now, all savings and deposits for purchase of securities went through the banking system. This has since stopped at the advent of the capital market. Hence, the Nigerian Stock Exchange (NSE) is the hubs of the capital market, pivot ground which every activity of the capital market revolves. This makes it unique in the area of long term mobilization and utilization of funds.


The capital market is not a single entity but a network of rather specialized financial institutions that bring together suppliers and users of capital, as explained by Okereke (2002). Osaze (2000) viewed it has being made up of several financial institutions which serve as financial intermediaries for obtaining long term funds. Al-Faki Musa (2006 lecture delivered) sees the component of the capital market as being comprises of a lot of players performing various functions. He categorized them into two major groups:


Statutory/Apex Regulation: This is the Securities and Exchange Commission (SEC).

Self Regulatory Organization (SRO) e.g the Nigerian Stock Exchange (NSE) and the Abuja Commodities and Securities Exchange (ACSE). Also, the Central Bank of Nigeria (CBN) and the Ministry of Finance.


Fund providers and investors: They include individuals, institutional/investors such as insurance companies, pension funds, unit and investment trust, corporate bodies, venture funds etc.

Fund users: These include government and companies.

Financial intermediaries: They include securities dealers, stock broking firms and their agents, issuing houses, under-writers, registrars, law-firms, transfer and receiving agents, etc.

Investment Advisers: These consist of investment advisers and their representatives, portfolio managers and rating agencies.


The Nigeria Stock Exchange is gradually developing, but it still lacks skilled man-power and technical know-how in the market. This results in the inability of the exchange market to carry out its main function which is to facilitate the channeling of long term funds for investment purpose. This underdevelopment nature of the capital market in Nigeria has resulted to low turnover because investors are not satisfied with the activities of the capital market. This has resulted to low volume of trade in the Stock Exchange, and also trading outside the floor of the Nigerian Stock Exchange illegally has created problem of poor turnover for the stock market. stock market lacks government patronage largely and to some corporate bodies too. This is due to lack of awareness of the market’s operations by the public. Also, there is low listing and market concentration etc. (Osamwonyi, 2006; lecture delivered). The government seems to rely heavily on the money market for finance instead of the capital market.

Based on these points above, this study or research work will be geared towards answering the following research questions;

Is there much awareness of the stock market operations by the public?

Will greater awareness increase the utilization o the market by the public?

Is there any alternative to increase the international participation in the market?

What should be done in order to increase or to improve the sale and purchase of equities/stocks in the market?

How has the market faired in channeling funds for investment and economic development purpose?

It the market developed?

Will better operations and patronage and high standard of the market help in rapid economic development through capital investment?


The main objective of the study is to critically evaluate the role of the capital market.

Other specific objectives of this study are as follows;

To examine the workings and operations of the stock market.

To examine the listing requirement of the Nigeria Stock Exchange (NSE) and the benefits of the capital market.

To examine the legal framework and regulatory agencies in the Nigerian capital market.

To identify the participants in the capital market.

To have an overview of the equity capital market internationally.

To identify the objectives and ascertain how far it has been able to achieve its stated objectives.

To examine the problems of the market

To make recommendations.


Hypotheses are often stated in the form of a relationship between a dependent variable (x) and an independent variable (y). For the purpose of this research work, the hypotheses formulated are as follows;

Null hypothesis (H0): Volume of transactions (VOT) has no positive relationship with market capitalization (MCAP).

Alternative hypothesis (H1): All-share index (ASI) ahs a significant relationship with market capitalization (MCAP).


This study is significant in the sense that its findings will be useful to intending investors, students, share holders, government and the general public.

The following are some of the achievement of this study;

To arise investor’s interest as they will be better informed to patronize the market in order to boost the activities of the market.

Accounting, Banking and Finance, Business Administration and Economics students will find it useful as a reference documents in future researches.

The study will serve to create a better awareness to the general public.

The path to development and improvement in the standard of the market operations will be exposed, which if well followed will improve the state of the economy.

It will help the government most especially to raise fund for investment projects.


This study focuses on the operations of the capital market particularly in relationship to equity purchase. The study will cover the period of 27 years. Theoretically, the study will cover the period “between” 1980-2007 empirically; the study will cover the period “between” 1985-2006 due to the fact that the major research institutions such as the Central Bank of Nigeria (CBN) and the Nigeria Stock Exchange (NSE) lack current data to carry out a comprehensive work. The study will assesses capital market activities globally, but will concentrate more attention on the Nigeria economy.


The date to be used for the empirical analysis will be obtained from secondary sources which include C.B.N statistical Bulletin, volume 17; December 2006 and NSE, SEC publications. The data will enable us test our hypothesis and finally conclude based on our regression results.


This research topic in no doubt is a wide one, but due to limited time, as the research work was carried out along side with other academic work, finance was also a constraint to this research work. Again, lack of current data and inadequate research institutions posed a problem. Some of the research institutions lacked current data and information for effective research. The above mentioned and précised problems are some of the numerous problems not stated. TERMS AND CONDITIONS

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