Analysis of the Impact of Foreign Portfolio Investments on the Performance of Nigerian Capital Market

Abstract

This study examines the impact of foreign portfolio investment on capital market performance in Nigeria using secondary data obtained from the Central Bank of Nigeria's Statistical Bulletin spanning the period from 1986 to 2021. Both descriptive and inferential statistics were conducted to analyze the relationship between foreign portfolio investment and market capitalization. The findings reveal significant positive effects of equity, bond, and money market investments on market capitalization in the long term, supporting the efficient market hypothesis, portfolio diversification theory, and liquidity preference theory, respectively. However, changes in interest rates, inflation rates, and exchange rates do not exhibit statistically significant relationships with market capitalization, indicating that these macroeconomic variables are not primary determinants of market valuation. In conclusion, equity, bond, and money market investments play crucial roles in driving market capitalization, highlighting their importance as contributors to market growth. To enhance capital market performance, fostering a conducive environment for equity investment, promoting bond market development, and strengthening the money market are recommended. Additionally, continuous monitoring and analysis of macroeconomic factors and the promotion of investment portfolio diversification can further support market stability and growth. These recommendations offer valuable insights for policymakers and investors seeking to optimize capital market performance and boost overall economic growth in Nigeria.

Keywords: foreign portfolio investment; market capitalization; interest rates; inflation rates; exchange rates

JEL Classification: P45, P41, G11