CAPITAL MARKET AND FOREIGN SECTOR FINANCIAL INDICATORS: A FINANCIAL ACCOUNTABILITY AND EDUCATION APPROACH

Abstract

This study examines the relationship between capital market operations and external sector performance in Nigeria for the period 1990–2024. Using annual time-series data from the Central Bank of Nigeria Statistical Bulletin, the paper applies a quasi-experimental design and an Autoregressive Distributed Lag (ARDL) modelling strategy to estimate both long-run cointegrating relationships and short-run dynamics. Empirical results show that market capitalization (LNMCAP) has a positive and statistically significant long-run effect on foreign exchange reserves, while the value of transactions (LNVTRD) exerts strong positive effects in the short run. The ARDL bounds test confirms cointegration among reserves, capitalization and trading activity; the error-correction term is negative and highly significant, indicating rapid adjustment to long-run equilibrium. Short-run dynamics reveal that lagged changes in capitalization can have dampening effects, whereas contemporaneous and lagged trading activity consistently support external sector performance. The study concludes that capital market operations can make or mar external sector performance in Nigeria. Policy implications include deepening market capitalization, boosting liquidity and trading activity, strengthening governance and disclosure, and promoting financial innovation to diversify external financing