Adeyemi A. Ogundipe

The study examines the link between exchange rate volatility and foreign portfolio in Nigeria using data that covers the period 1996Q1 to 2016Q4. The theoretical framework used is the return and creditworthiness model, which is based on the push and pull factors theory. In achieving the objective, the study adopted the vector autoregressive model in ascertaining the dynamics between exchange rate volatility and foreign portfolio investment in Nigeria. Also, the study examines the impact of exchange rate innovations (shocks) on foreign portfolio investment and equally assesses how induced variations in foreign portfolio investment are decomposed among the variables in the model. It was also found that exchange rate volatility and market capitalization significantly and largely explain the variations in foreign portfolio investment. The impulse response analysis shows that foreign portfolio investment was more responsive to standard deviation shocks in market capitalization and exchange rate, implying that these variables were more responsible for the dynamism in FPI. As the horizons expand, shocks to market capitalization and exchange rate increase foreign portfolio investment, whereas shocks to GDP and inflation made foreign portfolio investment dwindle. In the same manner, in decomposing the induced variation in foreign portfolio investment, forecast error shocks in market capitalization, exchange rate and GDP explain more of the variation in foreign portfolio investment.

This study contributes to the literature on inflation dynamics by examining whether internal or external factors drive inflationary pressure in Nigeria. Using the annual time series data from 1981 to 2017 and applying Johansen cointegration analysis, the vector error correction mechanism and the impulse response function, the study reveals some compelling evidence to suggest that external forces are responsible for inflationary pressure in Nigeria. The results, amongst others, reveal that: external drivers – exchange rate, imported inflation and openness – induce a positive and direct relation to inflation. This is because a percentage change in these variables results in an increase in inflation of 0.49%, 0.47% and 4.28%, respectively, on average, ceteris paribus; the internal drivers – government expenditures, net food exports and lending interest rate – dampen inflation by 0.48%, 1.70% and 0.02%, respectively, on average, ceteris paribus; there is evidence of cointegration indicating that 57.48% of short-run errors will be corrected in the long run; imported inflation contributes to a deviation of about 33% deviation in the first five periods and accounts for cumulative average of over 100% deviation in inflation. Policy implications are discussed.

Most studies concentrate on the impact of only one constituent of the foreign capital influx on the stock market and economic performance, but only few studies simultaneously considered the unique impact of the duo of foreign portfolio investment (FPI) and foreign direct investment (FDI), and many of these studies were not undertaken in Nigeria.This study, therefore, assesses how foreign capital inflows (FPI and FDI) affect the stock market development in Nigeria. The foundations for the empirical study were built upon the dividend discount model, which formed the basis for the analytical framework. Going forward, the ARDL co-integration procedure was adopted to examine the long-run relationship between foreign capital and stock market performance. The results from the ARDL Bounds test suggest no evidence of a long-run equilibrium relationship between foreign capital inflows (FDI & FPI) and the stock market performance. Also, the short-run analysis indicates an insignificant relationship between FDI and stock market performance, whereas, a reversed relationship was obtained for FPI, as it exerts a positive and significant impact on stock market performance. The study recommends strengthening the institutional framework for the enlistment of multinational companies in the Nigerian stock market.