The increasing integration and interdependence of the money and capital market has been observed in developing economies like Nigeria as it has been in developed economy but the roles, importance, sizes, effects and signs of the linkages is crucial for policy debate. This study identifies and validates the existence of some channels of financial market transmission in the
Nigerian context. Secondary data covering the periods of 1980 to 2013 was used to estimate the Vector Auto-regression (VAR) model. The cholesky dof adjusted method was employed to set the ordering of the variables and a standard deviation shock was given to the residuals in the VAR model to establish the transmission channel. The result shows that money market and capital market react to each other. Overall, the results underline the importance of the understanding of the financial market linkages and identify the existence of the credit and the asset price channel in the Nigerian context. Some of the policy recommendations are that policymakers should ensure (i)
An improved institutional environment and encourage healthy competition in the banking sector. (ii) Loan contracts should be protected and financial intermediation should be conducted through the financial markets among others.
Keywords: Financial Market, Transmission Channel, Vector Auto-Regression, E-views, Nigeria.