Modeling the Intermediation Behaviour of Institutional Investors (Theory and Practical Evidence): A Co-Integration and Causality Approach

Abstract

This study examines intermediation behaviour of institutional investors in Nigeria. The dramatic transformation in the financial markets has call for a provoking and ongoing theoretical and empirical debate to investigate the behaviour of institutional investors as it affects economic and financial development. These and other conflicting views on financial intermediation have promoted the intermediation behaviour hypothesis. The study uses the Johansen (1991) cointegration tests, the classical regression analysis, and granger-casualty test, unit root test and vector error correction (VEC) to establish the behaviour of institutional investors in Nigeria based on annual data spanning 1981 to 2013. Findings suggest that the behaviour of institutional investors is influenced or patterned significantly by the level of economic and financial development of an economy. Therefore it is our view that Nigeria being an emerging economy need to focus on economic development oriented policies and grow banks and non banks financial intermediaries as major player in order to stimulate a strong and vibrant financial sector development.