Foreign Portfolio Investment and Performance of the Nigerian Capital Market

  • Nwonodi Daniel Ikezam Department of Banking and Finance, Rivers State University, Port Harcourt, Nigeria
Keywords: Foreign Portfolio Investment, Nigerian Capital Market, Equity Investment, Net Foreign Portfolio Investment, Exchange Rate.


This study examined the effect of foreign portfolio investment on the performance of Nigerian capital market. The specific objectives are to investigate the impact of Net Foreign Portfolio Investment, Foreign Portfolio Investment in Equity, Foreign Portfolio Investment in Bonds, Foreign Portfolio in Government Securities and Nigerian Exchange Rate per US Dollar on the performance of Nigerian Capital Market. The required data were sourced from Central Bank of Nigeria (CBN) Statistical Bulletin and Stock Exchange Annual Report. The study has All Share Price Index and Market Capitalization as proxy for Capital market performance while Net Foreign Portfolio Investment (NFPI), Equity Investment (PIE), Bond Investment (PIB), Portfolio Investment in Government Securities (PIGS) and Exchange Rate as predictors variables. The Ordinary Least Square multiple regressions with econometric view were used as data analysis techniques. Cointegration test, Granger Causality Test, Augmented Dickey Fuller Test and Error Correction Model were used to examine the variables and its relationship to the dependent variables. Model one  revealed that foreign portfolio investment in bonds and foreign portfolio investment in government securities have negative relationship with All Share Price Index while Net Foreign Portfolio investment, foreign portfolio investment in equities and exchange rate have positive relationship with All Share Price Index. Model two revealed that Net Foreign Portfolio Investment, Portfolio Investments in Bonds and Government securities has negative relationship with market capitalization while equity investment and exchange rate have positive relationship with market capitalization. The study concludes that foreign portfolio investment have significant relationship with Nigerian capital market performance. It therefore recommends that policies should be devised to enhance the operational efficiency of the Nigerian capital market, to attract foreign investors.


Agarwal, R. N., (2006): Foreign portfolio investment in some is developing countries: A Study of Determinants and Macroeconomic Impact. International Journal of economics and finance. 15(28) 78-112.
Anayochukwu, O. B., (2012). The impact of stock market returns on foreign portfolio Investments in Nigeria. Journal of Business and Management 2 (4), 10-19.
Arestis, P., Demetriades, P. O.,&Luintel, K.B., (2001) .Financial development and economic growth: The Role of Stock Markets.Journal of Money, Credit and Banking.33 (2), 16-41.
Atje, R.,&Jovanovic, I., (1993) .Stock market and development.European Economic Review.37, 632-640.
Bekaert, G., &Harvey, C.R., (2003). Emerging market finance.Journal of Empirical Finance.10,3 – 55.
Bollerslev,T.,(1986). Generalized Autoregressive Conditional Heteroscedasticity. Journal of Econometrics, 31 pp 307-327.
Brennan, M. J., & Xia, Y., (2001) .Stock Price Volatility and Equity Premium.Journal of Monetary Economics.47, 249 – 283.
Brooks, C., & Burke, S. P., (2003).Information Criteria for GARCH Model Selection: An Application to High Frequency Data.European Journal of Finance.9 (6) 557-580.
Carlson, M. A., & Hernandez, Q., (2002). Determinants and Repercussion of the Composition of Capital Flows.IMF working Paper 02186.
Central Bank of Nigeria (2012).Statistical Bulletin and Statement of Accounts.Various Years.
Chanda, A., (2000). The Influence of Capital Control on Long-Run Growth: where and how much? Working paper, North Caroline State University.
Chandra, P., (2006).Investment Analysis and Portfolio Management.New Delhi: Tata McGraw- Hill Ltd, 2nd edition.
Chi-chi, O.A .,&Eze, A. L., (2013). Impact of Macroeconomic Indicators on the Performance if Foreign Portfolio Investment in Nigeria.European Journal of Business and Management. 5(2),345-367.
Choe, H., &Stulz, R., (1999). Do Foreign Investors Destabilize Stock Market? The Korean experience in 1997.Journal of Financial Economics, 54(2): 227-264.
Chukwuemeka, E. P., (2008). Modeling the long run determinants of foreign portfolio investment in an emerging market: Evidence from Nigeria.International conference on Applied Economic-ICOAE.
Dellas, H.,&Martin, K., (2002). Financial Development and Sensitivity of Stock Markets external Influence.Review of International Economics. 10(3), 525-538.
Dimirguc-Kunt, A.,& Levine, R., (1996).Stock Market Development and Financial Intermediaries: Stylized Facts.The World Bank Economic Review.10 (2) 241-265.
Donwa, P.,&Odia, J., (2010) .An Empirical Analysis of the Impact of the Nigerian Capital Market on Her Socio-Economic Development.Journal of Social Sciences.24 (2), 135-142
Ekineh, D., (2003). Deepening the Nigerian Capital Market: Regulatory, Supervisory and Operational Imperative in a Global financial Environment. Abuja: Security and Exchange Commission.
Errunza, V., (2005).Foreign Portfolio Equity Investments, Financial Liberalization, and Economic Development.Faculty of Management, McGill University, Montreal, Canada
Eskandar, T., (2005) .Modeling and Forecasting Egyptian Stock Market Volatility Before and After Price Limits.The Economic Research Forum Working paper.
Ezirim, B.C., (2005).Finance Dynamics Principles, Techniques & Applications. Markowitz Centre for Research & Development Port Harcourt.
Frimpong, J. M.,&Oteng-Abayie, E. F., (2006).Modeling and Forecasting Volatility of Returns on the Ghana Stock Exchange Using Garch Models. America Journal of Applied Sciences.3 (10), 2042 - 2048.
Gould, D. et al. (1993). The Theory and Practice of Free Trade.Federal Reserve Book of Dollar Economic Review, Fourth Quarter: 3-15.
Henry, P.B., (2000). Stock Market Liberalization Economics Reform and Emerging Market Equity Prices.Journal of Finance 55, 529-564.
Hongyu, P.,&Zhichao, Z., (2006).Forecasting Financial Volatility: Evidence from Chinese Stock Market.Working Paper in Economics and Finance, No.06/02, University of Durham.
International Monetary Fund (IMF) (1985).Foreign Private Investment in Developing Countries.International Monetary Fund, Washington D.C.
Kahneman, D; and Tversky, A. (1986).Choices, Values and Frames.American Psychologist. 6, 341-350.
Karimo, T.M., & Tobi, D.B., (2013). Macroeconomic uncertainty and foreign portfolio investment volatility: Evidence from Nigeria. 3 (12).
Kassimatis, K., (2002).Financial Liberalization and Stock Market Volatility in Selected Developing Countries.Applied Financial Economics.12,389 – 395.
Kim, E.H., & Singal, V., (2000). Stock Market Openings: Experiences of Emerging Economies.Journal of Business 73, 25-66.
Knill, A. M.,(2005). Can Foreign Portfolio Investment Bridge the Small Firm Financing Gap around the World? World Bank Policy.Research Working Paper 3796, the World Bank Group Washington, DC 20433
Kulwant, R.,&Bhanumurthy, N. R., (2007). Determinants of Foreign Institutional Investment in India: The role of Return, Risk and Inflation. Development Planning Centre, Institute of Economic Growth Delhi University Enclave, Delhi – 110 007, India.
Lebragacio, R.,(2010). Components of Foreign Capital Flows and Economic Progression: Panel Data Evidence from MENA Countries. ACT Mimeograph.
Lee, C. H., (2007). A Survey of the literature on the determinants of foreign portfolio investments in the United States.Journal Review of World Economics Springer Berlin 43(113) 233-278..
Lucas, E.R., (1981) Studies in Business-Cycle theory. Cambridge Mass: MIT Press.
Mala, R.,&Reddy, M., (2007).Measuring Stock Market Volatility in an Emerging Economy.International Research Journal of Finance and Economics, 8, 126-133.
Moreno, R. (1993). Are World Incomes Converging? Federal Reserve Bank of San Francisco, 26: 26-57.
Nyong, M. O. (2003).Predictability and Volatility of Stock Returns in Three Emerging Markets: Nigeria, South Africa and Brazil.Nigeria Journal of Economics and Development Matters, 2 (1), 12-29
Obadan, M. I. (2004). Foreign Capital Flows and External Debt Perspectives on Nigeria and the LDC’s group. Ibadan: Ibadan University Printer.
O'Connor, T. &Iscariot, H.,(2010).Trade Liberalization, Employment, Capital and Productivity Dynamics.Latin American Economic Society 14(7),178-204..
Odionye, J.C., (2011). An Empirical Analysis of the Relationship between Exchange Rate and Stock Prices in Nigeria.Unpublished M.Sc Thesis, University of Nigeria, Nsukka.
Ogujiuba, V.,&Obiechina, C., (2012). Foreign Private Capital, Economic Growth and Macroeconomic Indicators in Nigeria: An Empirical Framework. Canadian Center of Science and Education URL, 23,670-765.
Ogum, G.; Beer, F.,&Nouyrigat, G., (2005).Emerging Equity Market Volatility: An Empirical Investigation of Markets in Kenya and Nigeria.Journal of African Business, 6 (1&2) ,139-154
Okereke-Onyiuke, N (2001).The Nigerian Stock Exchange as a Vehicle for Capital Mobilization and Allocation to Productive Sectors. Being a paper presented to participants of senior executive course No 23 of the National Institute for Policy and Strategic Studies, Kuru, Plateau State. March 16, p12.
Okpara, G. C., (2010) .Analysis of Weak-Form Efficiency on the Nigerian Stock Market: Evidence from GARCH Model. The International Journal of Applied Economics and Finance, 4, 62-66.
Olotu, M. E.,&Kaine, A. I. N.,(2011). Globalization and Aggregate Employment Nexus: A Recent Experience of the Nigerian Industrial Sector. Journal of Research in National Development. 9(2) 177-229.
Oluba, N. M., (2008). Foreign investors strategies and corporate preparedness In Nigeria. Economic Reflections, 8(23) 26-31.
Olugunde, A.O., Elumilade, D.O., &Asaolu, T.O., (2006). Stock Market capitalization and interest Rate in Nigeria: A time series analysis. International Research Journal of Finance and Economics, 3(2) 188-212.
Onoh, J.K., (2002): Dynamics of money, Banking and Finance in Nigeria. An emerging market: Astra Meridian publishing, Lagos.
Onyiuke, N. O., (2009). A review of market performance in 2009 and the outlook for 2010.The Nigerian stock change.Journal of Nigerian Stock Exchange, 2: 17-21.
Osaze, E. B. (2000) The Nigerian Capital Market in the African and Global Financial System. Benin City: Bofic Consulting Group limited.
Oyejide, T.A. (1994).The Financial System and Economic Growth in the Context of Political Transition.Central Bank of Nigeria Economic and Financial Review, 12 (3), 260- 267.
Parthapratim, P., (2006). Foreign portfolio investment Stock market and economic development: A case study of India: Draft paper submitted for the Annual conference of Development and Change mission promoting development in a globalized world.
Porteba, J. M., (2000).Stock Market Wealth and Consumption.Journal of Economic Perspectives, 14 (2), 99-118
Prasand, E.S., R.G. Rajan, and A. Subramanian (2007): Foreign Capital and Economic Growth. Working Paper 13619 National Bureau of
Roubini, N., &Sala-Martin, X., (1991). Financial Development, the Trade Region and Economic Growth.National bureau for economic research.Cambridge Mass working paper: 102-118.
Sachs, J. D., Tornell, A., & Velasco, A., (1996). Financial crisis in emerging markets: The Lessons from 1995, Brooking papers on economic activity, 1: 147–217.
Yartey, C. A., (2008). The determinants of stock market development in emerging economies–Is South Africa different? IMF working paper WP/08/32.
How to Cite
Ikezam, N. D. (2018). Foreign Portfolio Investment and Performance of the Nigerian Capital Market. Australian Finance & Banking Review, 2(1), 11-25.
Original Articles/ Review Articles/ Case Reports/ Short Communications