Foreign Portfolio Investment and Stock Market Growth in Nigeria

Abstract

This study is designed to determine the impact of foreign portfolio investment inflows on stock market growth in Nigeria from 1986 to 2014. The study used co-integration, vector error correction model and Granger Causality econometric tools. The results obtained includes the following: the trace statistics indicates one(1) co-integrating equation at 5% level of significance, the vector error correction model indicates long-run significant impact of foreign portfolio investment on stock market growth in Nigeria, and the Granger Causality shows there is no causality between foreign portfolio investment and stock market growth in the Nigerian economy. The implication of the results is that foreign portfolio investment (FPI) inflows may not contribute positively to the increase in stock market when there is no conducive business environment for foreign investments to thrive in Nigeria. The study recommends that Federal Government of Nigeria should strengthen the Security and Exchange Commission (SEC) to promote constant inflows of foreign portfolio investment to Nigeria. That Nigeria Government should develop capital markets so that domestic trade volume should increase more than foreign portfolio investment (FPI) because of the existence of huge risk premium in Nigeria and that Central Bank of Nigeria (CBN) should be proactive in regulating foreign exchange transactions in Nigeria since the country is import-dependent country.

Keywords: Portfolio investment, Stock market Growth, Co integration, Central Bank of Nigeria