Impact of Foreign Portfolio Investment Volatility on Total Market Capitalisation in Nigeria

International Journal of Economics and Management Studies

© 2019 by SSRG - IJEMS Journal

Volume 6 Issue 10

Year of Publication : 2019

Authors : NWALA Maurie Nneka, NWAGBOSO Innocent Chidiebere, NWANKWO Odi

10.14445/23939125/IJEMS-V6I10P111

How to Cite?

NWALA Maurie Nneka, NWAGBOSO Innocent Chidiebere, NWANKWO Odi, "Impact of Foreign Portfolio Investment Volatility on Total Market Capitalisation in Nigeria," SSRG International Journal of Economics and Management Studies, vol. 6,  no. 10, pp. 78-91, 2019. Crossref, https://doi.org/10.14445/23939125/IJEMS-V6I10P111

Abstract:

Foreign portfolio investment inflows are important to the development of capital market of any nation that are recipients of these inflows. This is required to sustain the role of capital markets in achieving resource mobilization, liquidity transformation and security marketability through international financial intermediation process. However, market experience across assets and portfolio ranges in equity, bond and short-term securities had retained volatility and shock effects that had remained speculative as to whether or not it has an impact on the capital market development in Nigeria. Hence, this study investigates the impact of foreign portfolio investment volatility on total market capitalisation in Nigeria between 2007M1 and 2018M12. Data generated were analysed using the Exponential Generalized Conditional Heteroscedasticity (EGARCH) and Autoregressive distributed lag (ARDL) techniques. Findings from the study showed that volatility in Equities investment in foreign portfolio investment has a significant impact on total market capitalisation in Nigeria. The study however revealed that Volatility in Bond investment by foreign portfolio has no significant impact on total market capitalisation in Nigeria between 2007 and 2018. Information asymmetries that exists within capital market operations, as well as the unpredictability of the activities of the international markets hugely contributes to volatilities of foreign portfolio investment in bond that impacts insignificantly on capital market development in Nigeria. The study further revealed that Volatility in Money Market instruments foreign portfolio has no significant impact on total market capitalisation in Nigeria. The study thus recommends that there is the need for capital market regulatory authorities to develop and implement proper policies that could cushion the effect of unpredictable global activities that reverses foreign portfolio investments inflows.

Keywords:

Foreign portfolio investment, Volatility, Equity, Bonds, Money market and Capital Market

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