FINANCIAL MARKET FRICTIONS AND TRADE IN THE NIGERIAN BOURSE

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JAF Volume 9 Special Issue II (2022)

Capital gain Tax Rate, Financial Market Frictions, Nigerian Stock Market, Transaction Cost, Volume of Stock Traded

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Aigbovo, O.¹ and OMORUYI-AIGBOVO, O.^2*

¹²Department of Banking and Finance, University of Benin, Edo State, Nigeria

¹omoruyi.aigbovo@uniben.edu; ²irabor.osariemen@uniben.edu

DOI : 10.57075/jaf922sp04

ABSTRACT

Using data from 1982 to 2021, this study looked at how financial market frictions affected trade on the Nigerian bourse. For the study, a longitudinal research approach was chosen. The study’s specified model was estimated using the Error Correction Mechanism (ECM) and multivariate ordinary least square (OLS) techniques. Findings revealed that only the capital gains tax rate hindered trading activities in the Nigerian stock market in the long run during the period studied. However, in the short run, transaction costs, capital gain tax rates, and dividend tax rates all have a negative impact on trading activity on the Nigerian stock exchange, but they fail the significant test. As a result, the study concludes that the capital gains tax rate is the only financial market friction that impedes trade on the Nigerian stock exchange during the study period. To mitigate the negative impact on trading activity on the Nigerian bourse, the government should ensure that capital gains are taxed at a reasonable rate. Accordingly, the present capital gains tax rate of 10% should be cut to 5%.

Keywords: Financial Market Frictions, Nigerian Stock Market, Volume of Stock Traded, Transaction Cost, Capital gain Tax Rate

JEL Classification: F21; G15

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