CHAPTER ONE
INTRODUCTION
1.1 Background to the study

The capital market in any country is one of the major pillars of long term economic growth and development. The market serves a broad of clientele including dierent level of government, corporate bodies and individuals within and outside the country. For quite some time now, the capital markets generally, are believed to be heart beat of
the economy given their ability to respond almost instantaneously to fundamental
changes in the economy (Maku & Atanda, 2010).

The capital market is known as the equity or stock market and is one of the important areas of a market economy as it provides access to capital to companies, ownership in the company for primary investors and the potentials of gains based on the rms future performance for secondary investors (Osoro,2013). Returns from such equity investments subject to vary owing to the movement of share prices, which depends on various factors which could be internal or rm specic such as earning per share, dividends and book value or external factors such as interest rate, GDP, Ination, government regulations and foreign exchange rate (Omodero & Ekwe,2016).Capital market performance is the indicator of stock market as whole. It gives signal to the investors about their future moves. The movement in the price of the stock and the indexes gives the idea of the near future trend of the stock or sector as a whole (Maku & Atanda, 2010). As nancial domain is the most important one of an economy, so the capital market performance works as an indicator of the overall health of the economy.

Capital market indexes typically gives the overall performance of the market, indexes
reect the performance of the economy (Barako, 2007). Stock price is used as a benchmark or an indicator of the performance of a stock and if the price of a particular stock is rising, then it is perceived that it has certain positive
news or signals. But if it decreases then there must be some news regarding its performance, which is generating negative signals to the market (Osoro, 2013). Hence, the stock price movement and index movement show the general economic trend of a country. Capital market performance aected by a wide array of factors as economic, political, international and company specic issues, and it is imperative for the nancial manager of the rms to pay due attention to the factors that inuence stock prices as this could help them enhance rm value in the market (Garcia & Liu, 1999). Brinson, Singer and Beebower (1991) dened macroeconomic variables as those that are pertinent to a broad economy at the regional or national level and aect a large population rather than a few selected individuals. The variables indentied as having major inuence include ination, gross domestic product (GDP), currency exchange
rates, interest rates, legal and regulatory environment and risk. These variables are closely observed by business, government and consumer and they have an impact on the capital market performance. Kwon and Shin (1999) observe that  an economy aect the performance of its capital market and by extension the most influential macroeconomic variable are GDP, exchange rate, interest rate, ination and market risk.

Sharma and Singh (2011) found that many capital market performance, which normally
carry out their investment over a long duration of time and usually they have an expectation that macroeconomic variable will remain stable and favorable to their operation over the entire duration of their investment. The movement in stock prices is directly related to some fundamentals like performance of the rm, movement in key
macroeconomic variable and government actions (Karitie, 2010)
The linking of macroeconomic variable and capital market is the aggregate capital market framework, where a change in given underlying systematic risk factor influencing future returns. Most of the empirical studies, linking the state of macroeconomy to capital market returns or performance, are characterized by modeling a
short run relationship between macroeconomic variables and stock prices, assuming trend stationarity (Andrew & Peter, 2007). In assessing the determinants of capital market performance, this paper will mainly consider exchange rate, inaction rate, money supply and real gross domestic product (real GDP).

1.2 STATEMENT OF THE PROBLEM
The performance of the capital market in any country is the indicator of general economic performance and is an integral part of the economy of any country. With the introduction of free and open economic policies and advanced technology. Investors are nding easy access to capital market. The fact that capital market indices have become an indicator of the health of the economy of a country indicates the importance of capital market. The increasing importance of the capital market has motivated the formulation of many theories to describe the working of the capital market (Gupta, Chavaller and Sayeki, 2008).

Garcia and Liu (1999) established that macroeconomic volatility does not aect
capital market performance. While Maku and Atanda (2010) revealed that the stock market
performance in Nigeria is mainly acted by macroeconomic forces in the long run in Nigeria.
Ting, Feng, Weng, and Lee (2012) established that Kuala Lumpur composite index is consistently inuence by interest rate, money supply and consumer price index in short run and long run in Malaysia. Mahwish (2013) established there is negative relationship between real interest rate and stock market performance in Pakistan. Jahur, Quadir and Khan (2014) established microeconomic variable such as consumer price index, interest rate have signicant impact on the stock market performance in Banglade. It is notable that there is lack of consensus of the eect of macroeconomic factors, on capital market performance. Therefore, this study will examine the macro-economic determinant of capital market performance in Nigeria.

1.3 Research Questions
What are the relationship between the capital market and macro-economic
variable in Nigeria?
What are the impact of macroeconomic variable on the Nigerian capital market
performance?

1.4 Research Objectives
The general objective of this study is to examine the eect
of the selected
macroeconomic determinant of capital market performances in Nigeria. The specic
objectives of the study are:
Examine the relationship between the capital market and micro-economic variable
in Nigeria?
Investigate the impact of macroeconomic variable on the Nigerian capital market
performance?

1.5 Research Hypotheses
The following hypotheses were tested for the purpose of the study;
Ho1 There is no signicant
relationship between the capital market and macroeconomic
variables in Nigeria
Ho2 there is no signicant impact of macroeconomic variables on Nigerian Capital Market performance.

1.6 Signicance of the study
The Nigerian Securities and Exchange Commission and Nigerian Stock Exchange (policy maker); the study ndings will be of great benet in formulations and implementation of policies related to share pricing as well as regulating of stock exchange trading. The government will also be informed on how to make policies, rules and regulations regarding trading rule that will help protect investors so as to encourage investment and spur economic growth.
Firms and individual (Investors): The nding will assist them in understanding the factors acting share prices and they will be better informed on how to range their investment options while banks and other financial institution will be investors who seeks ndings to nance share purchases. In addition, scholars and researchers will nd the study useful if they wish to use the nding as a basis for carried and further research on the subject.

1.7 Scope of the study
The research covered an evaluation of macroeconomic determinant of capital market performance in Nigeria. The scope of the study is the Nigerian stock exchange, making use of the capital market performance indicators such as market capitalization. The study covered the period of 1985-2015 and selected macroeconomic variable such
as real GDP, ination rate and money supply in determining capital market performance.

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