Nexus between foreign portfolio investment flows and the Egyptian stock exchange: Evidence from Egypt

While the determinants of foreign portfolio investment (FPI) flows to India have been extensively analyzed, research has largely failed to document the impact and the relative importance of domestic monetary policy shock vis‐à‐vis other variables in causing FPI flows to India. This study adds to the literature by empirically examining the impact of the domestic monetary policy shock on FPI flows to India using the structural VAR methodology. It further disaggregates the analysis of FPI flows into portfolio equity flows (PEF) and portfolio debt flows (PDF) to investigate whether a domestic monetary policy shock affects the two flows similarly or differently. The study finds that domestic monetary policy shock (measured through shocks to interest rate differential and domestic money supply growth) significantly influences FPI flows to India, explaining about 10.1% of the total variation in these flows. The disaggregated analysis of FPI also reveals similar results for both portfolio equity flows and portfolio debt flows; however, the impact of the domestic monetary policy shock is greater on the debt component of FPI (portfolio debt flows) than on the equity component of FPI (portfolio equity flows).

India's IT industry is very attractive to foreign investors because of its low operating costs, large pool of highly skilled workers, and supportive business climate created by government regulations. These regulations are designed with investors' demands in mind, with a special focus on subjects like blockchain technology, cybersecurity, hyper-scale computing, and artificial intelligence. India is the market leader in the world of service sourcing in terms of market share. The computer hardware and software industries have attracted the highest inflows of foreign investment, with US$9.39 billion invested in them in FY23. This industry, which employs more than five million people, accounts for 53% of India's service export earnings. It is projected that the IT sector in India will contribute 10% of the country's GDP by 2025. FPIs have a significant impact on the IT sector in a number of ways, with an emphasis on how sector performance influences FPI investment decisions and vice versa while taking into account regional and global market trends, industry-specific regulations, and technological advancements. This study examines the effects of foreign portfolio investments in the IT industry on sectoral returns and volatility of corresponding sector stock index using weekly time series data spanning an eleven-year historical period from April 2012 to the final day of March 2023. This research indicates that growth in the IT sector will drive more foreign portfolio investment (FPI) flows into the Indian IT industry, as the FPI flows into the Indian IT sector are primarily determined by the performance and returns of the IT sector. Overall, this study demonstrates the complicated relationships and complexity of these financial and economic variables, offering valuable insights into the behavior of financial portfolio investors and how such relationships impact sectoral dynamics and macroeconomic stability. DOI: https://doi.org/10.52783/eel.v14i2.1672

Foreign Portfolio Investment (FPI) flows have fluctuated significantly in the Egyptian stock market from 1993 to 2020. This high volatility of FPI has drawn attention to assess its possible effects on the Egyptian economy in terms of macroeconomic stability. Therefore, this study aims to empirically investigate the relationship between FPI flows and the inflation rate, which is a critical indicator of macroeconomic stability. For this purpose, the study applies a vector autoregressive (VAR) model to test the short-run dynamics among the variables of interest. Also, it conducts the granger-causality test to check the causalities among variables. Additionally, it applies the auto-regressive distributed lag (ARDL) model to examine the long-run relationships among these variables. An error correction (ECM) can then be applied by analyzing both the short-run and long-run relationships among the model variables. Empirical results showed that FPI flows increase the inflation rate in Egypt in both the short-run & long run, thereby negatively impacting the macro-economic stability of the Egyptian economy.

Purpose of the study: Examining and evaluating the short- and long-term linkages and correlations between foreign portfolio investment flows in the Indian IT sector and the performance of IT companies in the Indian equities market is the aim of this study. This study looks into the effects of foreign portfolio investments in the IT industry on sectoral returns and the volatility of pertinent sector stock indices. Design/Methodology/Approach: For an eleven-year period, from April 2012 to March 2023, the current study employs weekly time series data of the FPI, VIX, interest rate, CPI, and exchange rate USD-INR for the IT sector. In order to accomplish the stated goal of the study, this work applies the Granger causality test and the Johansen Cointegration test. After stationarity has been established, the next step is to search for autoregressive conditional heteroscedasticity (ARCH). GARCH (2,1) is the most acceptable predictor for determining the level of volatility in the IT industry because weekly data was used in this study. Findings: The results determined that there is a bidirectional Granger Causality between FII-IT movements and Nifty-IT movements. The IT sector's long-term FPI movements were positively correlated with returns, as demonstrated by the findings of Johansen's Co-integration Test. The results also show that as FPIs increase, stock values decrease because stock prices are increasingly susceptible to their selling pressure. A study showed a connection between FII inflows and outflows and surges in the volatility of the IT industry. Implications and Recommendations: The study provides policymakers with a number of recommendations for bolstering the Indian stock market. First, given the current state of the economy, India has embraced a policy to encourage Foreign Portfolio Investors (FPIs) in its capital markets. This is because FPIs boost capital inflows into the nation while maintaining the nation's low level of foreign debt. Second, increased financial stability and efficiency are needed by small-cap companies, particularly those that are still developing. Due to this fact, the government must create appropriate rules for their sustainable financial development.

We examine drivers of foreign direct investment (FDI) and foreign portfolio investment (FPI) in nine selected African economies, during the period 1980 to 2014, with particular interest in the role of financial market development. We set out to explore the drivers of FDI and FPI in selected African countries, respectively. We employ the dynamic GMM methodology to assess the motivators of inward foreign flows. The results show that FDI inflows are generally dependent on past inflows of FDI, low inflation, infrastructural development, and real GDP growth rate; while stock market capitalisation, commercial bank assets gauged against commercial and central bank assets as well as domestic credit to the private sector by banks intermediate for financial market development. On the other hand, we find that FPI inflows are attracted to foreign destinations due to previous FPI inflows, the real exchange rate, inflation rates and the presence of developed infrastructure. Further, developed financial markets, as proxied by stock market capitalisation, were found to significantly and positively influence inward FPI flows, while a closed financial account and low interest rate discouraged FPI. The significant contribution of this paper is that its findings empirically confirm FDI and FPI theory, as postulated in Dunning’s eclectic paradigm insofar as the main “location” variables that enhance host country attractiveness are concerned, specifically in the African context. In light of these findings, we recommend that policy makers strengthen their domestic markets, complemented by appropriate regulations and institutions to attract foreign investment flows, while reducing their dependency on international aid and loans.

We examine drivers of foreign direct investment (FDI) and foreign portfolio investment (FPI) in nine selected African economies, during the period 1980 to 2014, with particular interest in the role of financial market development. We set out to explore the drivers of FDI and FPI in selected African countries, respectively. We employ the dynamic GMM methodology to assess the motivators of inward foreign flows. The results show that FDI inflows are generally dependent on past inflows of FDI, low inflation, infrastructural development, and real GDP growth rate; while stock market capitalisation, commercial bank assets gauged against commercial and central bank assets as well as domestic credit to the private sector by banks intermediate for financial market development. On the other hand, we find that FPI inflows are attracted to foreign destinations due to previous FPI inflows, the real exchange rate, inflation rates and the presence of developed infrastructure. Further, developed financial markets, as proxied by stock market capitalisation, were found to significantly and positively influence inward FPI flows, while a closed financial account and low interest rate discouraged FPI. The significant contribution of this paper is that its findings empirically confirm FDI and FPI theory, as postulated in Dunning’s eclectic paradigm insofar as the main “location” variables that enhance host country attractiveness are concerned, specifically in the African context. In light of these findings, we recommend that policy makers strengthen their domestic markets, complemented by appropriate regulations and institutions to attract foreign investment flows, while reducing their dependency on international aid and loans.

ABSTRACTUsing unique daily foreign transactions data in both stock and bond markets, we investigate the daily dynamics of the IDR/USD exchange rate and foreign portfolio investment flows. Based on an unrestricted vector autoregression (VAR) model, we find feedback relations between capital market net foreign inflows (NFI) and IDR/USD returns. Further investigation by decomposing capital market NFI into bond market NFI and stock market NFI reveals that only bond market NFI has feedback relations with IDR/USD returns. Meanwhile, we find only a unidirectional relation in the stock market, where stock market NFI does not Granger cause IDR/USD returns, but IDR/USD returns lead stock market NFI. The results suggest that foreign investors tend to rebalance their international portfolio and chase higher returns in the bond market. Additionally, we learn that bond market NFI leads stock market NFI, which means that foreign investments flow to (from) the bond market before they flow to (from) the stock market. Further analysis utilizing dynamic conditional correlation in the bond market confirms the bidirectional relations between NFI and IDR/USD returns. Hence, foreign participation in the bond market appears to yield more impact on the exchange rate than its participation in the stock market.

The article is devoted to the comparative picture and problems of foreign portfolio investment in the real sector of the economy. The article analyzes the main obstacles that arise in the process of attracting foreign portfolio investments. The factors influencing the increase in the flow of foreign portfolio investments, the possibility of their rapid attraction and effective distribution are considered. Sustainable development of the economy of any country today is impossible without active participation in world economic relations. Along with international trade, international flows of investment capital, carried out on the basis of effective cooperation between countries, are becoming increasingly important. In recent years, the issue of attracting external capital to the Armenian economy has become topical. Foreign investment is one of the most important conditions for stabilization and growth of the country's economy. This is primarily due to the fact that firms’ own financial resources are limited, which is due to a number of reasons in Armenian reality, such as high return on invested capital, high taxes, etc. The movement of global financial capital through the channels of the global financial system occurs in various forms, among which international portfolio investments, including investments in equity and debt securities, occupy a special place. Financial globalization is accelerating the trend towards expanding the market segment of international portfolio investments.

Reversals of foreign portfolio equity due to a shift in investor risk appetite may have a drastic impact on the value of shares of commercial banks hence the effect on stock returns. Uncertainties in the flow of foreign portfolio investments (FPI) result in unpredictable behaviour of stock returns in Kenya’s economy and also at the firm level. The objective of this study was to find out the effect of foreign portfolio equity and exchange rate risk on stock returns of listed commercial banks in Kenya. The target population of the study was 11 commercial banks listed on the Nairobi Securities Exchange. The study used purposive sampling technique and concentrated on 10 commercial banks. This study used a causal research design and adopted a panel data regression using the Ordinary Least Squares (OLS) method where the data included time series and cross-sectional. Hausman test was carried out and findings indicated that random effects model was preferable for this study. Results from panel estimation showed that exchange rate risk affect stock returns of listed financial institutions in Kenya. The study recommended that policies that would attract foreign portfolio investment should be pursued by commercial banks in order to enhance stock returns. Key words: Foreign portfolio equity, stock returns, exchange rate risk, commercial banks, Nairobi securities exchange, Kenya.

Uncertainties in the flow of foreign portfolio investments (FPI) result in unpredictable behaviour of stock returns in Kenya’s economy and also at the firm level. The net effect of this is the possibility of financial loss suffered by the banking and non-banking institutions. The objective of the study was to compare the effects of foreign portfolio equity on stock returns of listed banking and non- banking institutions in Kenya. The study used purposive sampling technique and concentrated on 14 banking and non-banking institutions listed on the Nairobi Securities Exchange. Secondary data was obtained from Central bank of Kenya, Nairobi securities exchange and capital markets authority for the period January 2008 to December 2014. The study used causal research design, and adopted a panel data regression using the Ordinary Least Squares (OLS) method where the data included time series and cross-sectional data that was pooled into a panel data set and estimated using panel data regression. Results from panel estimation showed that exchange rate risk had a significant negative coefficient of -0.8371 with a P- value of 0.0020 for banking institution and negative coefficient of -0.6023 with a significant P- Value of 0.0673 for non-banking institutions. The results are statistically significant at one percent level of significance and five percent level of significance for banking and non-banking institutions respectively. Inflation had significant negative coefficient of -1.7550 with a P- value of 0.0210 in relation to stock returns for banking institutions and an insignificant negative coefficient of -0.6875 with a P- value of 0.4569 for non-banking institutions. The results indicate that the stock returns of banking institutions are affected by inflation while inflation has no effect on non-banking stock returns. The study recommended that policies that would attract foreign portfolio investment should be pursued in order to enhance stock returns. Key words: Foreign portfolio equity, banking institutions, non-banking institutions, stock returns, Nairobi securities exchange.

India attracts a large sum of foreign investments every year. These foreign investments have a remarkable impact on Indian economy. Real economy is assumed to be affected by foreign investment through its constituents like exchange rate, foreign exchange reserves, economic growth, etc. Exchange rate movements are also believed to affect the foreign portfolio investment, especially foreign institutional investment coming to the country. The unit root test is applied to determine stationary of the time series data. Vector error correction model is applied to determine the dynamics of the relationship between foreign investment and exchange rate. The result shows that foreign portfolio investment, foreign direct investment, index of industrial production, interest rate and wholesale price index have a positive impact on the exchange rate (REER), that is, Indian rupee appreciates whereas import has negative impact on exchange rate in India that is, Indian rupee depreciates. In short, foreign portfolio investment in India may lead to rupee appreciation with several other currencies and their selling and disinvestment may lead to its depreciation.

The effect of foreign portfolio investments on the performance of financial sector in Nigeria was investigated by means of the ex-post facto design. Data of foreign portfolio investments and contribution of financial sector to gross domestic product was obtained from the Central Bank of Nigeria (CBN) Statistical Bulletin and World Bank Development Indicators spanning 1981–2016. Data obtained was analysed using stationarity and unit root, co-integration, ordinary least square estimation, error correction model, and variance decomposition tests. Findings of the study showed that foreign portfolio investments significantly affect the performance of financial sector in Nigeria. On the basis of this, it was recommended the government should strengthen the financial sector, specifically the money and capital markets in order to enhance the flow of foreign portfolio investments into this sector in Nigeria. This is because foreign investors can invest on financial or liquid assets with the hope of a sound future return.

This study provides empirical evidence on the problem of the trilemma of monetary policy in an open economy, in the context of the effect of exchange rates and foreign capital flows on the performance of the ITF in Indonesia. The method used as an empirical estimate is the Structural Vector Autoregressive (SVAR) model. This model allows to include restrictions in the empirical estimation of parameters that measure the contemporaneous effect of one variable on another variable according to the structure of the macroeconomic model. Meanwhile, the lagged effects are estimated according to the VAR model. Therefore, the SVAR model is considered more appropriate than the ordinary VAR model because it can measure both the instantaneous effect and the intertemporal effect of the problem under study. The SVAR model uses restrictions that are consistent with the theoretical model in its estimation, regardless of the time-to-time effect of one variable on another. There are 9 variables in the SVAR model, namely: global risk, oil prices, federal funds rate, economic growth, inflation, interest rates, monetary policy, credit interest rates, foreign portfolio investment flows, and the rupiah exchange rate. All data used were obtained from several sources, including: Bank Indonesia, Central Statistics Agency, and IMF. Based on the estimation results, the exchange rate and foreign capital flows have a significant effect on inflation and economic growth, thus affecting the performance of the ITF in Indonesia. In particular, there is a relative influence between external factors, particularly global commodity prices, US monetary policy interest rates, and global risks, and domestic factors, particularly economic growth, monetary policy interest rates, and bank interest or credit rates. This study also concludes that in addition to inflation and economic growth considerations, Bank Indonesia also considers exchange rate movements in determining its interest rate policy response.

This study examines the relationship between money supply, macroeconomic indicators, and foreign portfolio investment in Vietnam. Using the Autoregressive Distributed Lag Model and Stata 17 software to analyze quarterly data from Q1/2007 to Q4/2022, the analysis reveals strong and enduring correlations. An increase in money supply and economic growth positively influences foreign portfolio investment, with the money supply from the previous quarters significantly impacting foreign portfolio investment (P-value < 0.01). However, foreign exchange rates and foreign direct investment negatively affect foreign portfolio investment. Three macroeconomic indicators show significance at 1% and 5%, where gross domestic product positively affects foreign portfolio investment, while foreign exchange rates and foreign direct investment have detrimental impacts. The findings indicate that a 1% increase in gross domestic product leads to a USD 50.426 million increase in foreign portfolio investment, while a USD 1 million increase in foreign direct investment results in a USD 0.025 million decrease. Foreign exchange rates significantly affect foreign portfolio investment, with the potential for reduction through VND devaluation or an increase in the VND/USD exchange rate due to government adjustments. Definitive conclusions about external debt, interest rates, and inflation require additional data and research. The study’s R-squared value is 0.2738, with an adjusted R-squared of 0.1813, explaining 27.38% of future changes in Vietnam’s foreign portfolio investment. These findings have important implications for policymakers, suggesting that expanding the money supply and implementing suitable interest rate policies could enhance foreign portfolio investment attractiveness in the nearest term. AcknowledgmentThe author would like to thank the board of editors and the anonymous reviewers for their time and suggestions, which were most helpful in improving this article.

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.