Abstract
Emerging markets like Nigeria have consistently utilized foreign portfolio investments inflows to boost the economy. While economies consistently harness Foreign Portfolio Investment (FPI) in equity stocks to grow the economy, the report on foreign portfolio investments in bond stocks is too low to bridge the savings-investment gap in the economy. Therefore, this study examines the effect of foreign portfolio investment in bond stocks on the performance of the Nigerian stock market. The study employed ex-post facto research method using monthly time series data from 2007 to 2017. Using the Auto-Regressive Distributed Lag (ARDL) model, the study found that foreign portfolio investment in bond stocks have a positive and significant influence on the Nigerian stock market performance at 5% level (t-stat= 2.91380, P= 0.0038<0.05; R 2 = 0.73). The study concludes that foreign portfolio investment in bond stocks significantly predict stock market performance in Nigeria, and therefore recommends that the market regulators need to further encourage foreign investments in bond stocks as this financial instruments do not attract much investment as equity stocks. Also, there is need for sound corporate governance and transparency as well as full disclosure of financial information by listed firms in order to increase the attraction of foreign portfolio investment in debt stocks [U1] to Nigeria. [U1] as amended
Highlights
Foreign Portfolio Investment (FPI) include several instruments that are traded in any organized and other financial markets
PBS= Monthly Foreign Portfolio Investments in Bond Stocks Nigeria FID= Monthly Financial Development Measured by the M2/GDP EXR= Monthly Exchange Rate of the Naira/Dollar IFR= Monthly Inflation Rate measured by a change in Consumer Price Index (CPI) Interest Rate (ITR)= Monthly Prime Lending Rate in Nigeria
The result shows that the Volume of Transactions in the Nigerian Stock Market (VOT), Foreign Portfolio Investments in Bond Stocks (PBS) were stationary at levels as their Augmented Dickey-Fuller (ADF) statistics were significant at 5% while it was tested at level
Summary
FPI include several instruments that are traded in any organized and other financial markets. These instruments are bonds, equity, and money market instruments. FPI is seen as a source of foreign private capital to every economy. Its role in positioning a country for socioeconomic development cannot be overemphasized (Charles, Takaaki & Akiko, 2014). Since no country is an island on its own, in terms of resources needed to stimulate investment, generate employment and foster economic growth, recourse must be made from time to time to encourage foreign investment to bridge the financial gaps between revenue and planned expenditure, balance of payment differences, terms of trade, and so on (Idowu & Babatunde, 2012).
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