CHAPTER ONE

Introduction

1.1      Background of the study

Stock markets may affect economic activity through the creation of liquidity. It contributes to economic development by enhancing the liquidity of capital investments. Many profitable investments require a long-term commitment of capital, but investors are often reluctant to relinquish control of their savings for long periods. Liquid equity markets make investment less risky–and more attractive–because they allow savers to acquire an asset–equity–and to sell it quickly and cheaply if they need access to their savings or want to alter their portfolios. At the same time, companies enjoy permanent access to capital raised through equity issues. The Nigerian capital market needs to play the role of an enabler for the transformation of the Nigerian economy, by becoming the first port of call for domestic savings and for international investors (Oteh, 2010).

Until recently, the literature has focused mainly on the role of financial intermediation in the process of economic growth and capital accumulation.