Foreign Portfolio Investment Research Articles

Exploring the Dynamic Relationship: How Exchange Rates Drive Company Valuation through Foreign Portfolio Investments

This study aims to analyze the influence of economic growth and exchange rates on firm value with foreign portfolio investment as an intervening variable at PT Bank Central Asia Tbk. for the period 2011-2020. Quarterly secondary data from 2011-2020 were utilized. The data were then processed using EViews 11 Version analysis tool. The analysis employed descriptive statistics, linear tests, and classical assumption tests. Hypothesis testing was conducted using Partial Test (T-Test). The results of the partial test (T-Test) indicate that economic growth, exchange rates, and foreign portfolio investment insignificantly influence firm value. However, regarding the intervening variable, foreign portfolio investment does not mediate the influence of economic growth (GDP) on firm value, either directly or indirectly, and foreign portfolio investment also does not directly mediate the influence of exchange rates on firm value. Nonetheless, exchange rates directly affect foreign portfolio investment, thus reinforcing the relationship between exchange rates and firm value. Therefore, the fifth hypothesis is accepted.

What explains foreign portfolio investment inflows to BRICS countries?

Large and volatile foreign portfolio investment (FPI) inflows raise financial instability concerns and create several macroeconomic challenges for developing countries. Identifying the factors driving FPI inflows is therefore essential for formulating appropriate policies to manage these inflows efficiently. This study uses a GM-FMOLS panel cointegration approach to examine and identify such factors for BRICS countries, the leading recipients of FPI inflows among all developing countries. The study finds that the 10-year US Treasury bond yield exerts a significant negative influence on FPI inflows. These bonds provide risk-free long-term returns to portfolio investors; hence, a rise in the yield on such bonds prompts them to readjust their portfolios away from assets in developing countries to US Treasuries, leading to a decline in FPI inflows. The study further finds that a thriving domestic stock market, a higher interest rate differential, an appreciating domestic currency, an improvement in the recipient country’s creditworthiness, and a greater degree of trade openness are conducive to FPI inflows. However, a rising consumer price index, higher foreign output growth, and greater global financial volatility discourage these inflows.

Foreign Investment and Stock Market Development in Indonesia

The Indonesian capital market is growing and is significantly influenced by domestic and international macroeconomic factors. Foreign investment is one of the worldwide factors considered to affect the growth of Indonesia's capital markets. The objective of this study is to investigate the impact of foreign investor in term of Foreign Direct Investment (FDI) and Foreign Portfolio Investment (FPI) on the value of Indonesian stock market capitalization (MarCap). This study utilized a quantitative-descriptive research approach. Annual time series for 21 years starting from 2000 to 2020 of FDI, FPI, and MarCap data utilized. Data processing uses SPSS-25 which includes Classical Assumption Test, Multiple Linear Regression, Coefficient of Determination Test, and t-test. The findings of current study prove that both FDI and FPI have a favorable and statistically significant influence on the development of stock market capitalization in Indonesia. The study implies that the government must formulate regulation which encourages macroeconomic stability and appropriate policies to attract more foreign investors to participate in Indonesia and contribute to the development of the stock market.

Does foreign portfolio investment moderate the impact of exchange rate volatility and investor sentiment on country index crash risk?

Does foreign portfolio investment moderate the impact of exchange rate volatility and investor sentiment on country index crash risk?

Foreign investor portfolio flow and monetary policy response in the Indonesian stock market considering the COVID-19 pandemic

Foreign portfolio investment in developing countries, including Indonesia, plays a crucial role in the economy, where this fund flow can influence exchange rates and stimulate price increases in the stock market. During the COVID-19 pandemic, the volatility of foreign portfolio flows by investors has significantly increased. To anticipate these conditions, the monetary authorities in Indonesia have implemented various monetary policies to address the possibility of more adverse situations. This study examines the impact of the inflow or outflow of foreign portfolio investments and the monetary policies reflected in the 7-day repo rate of Bank Indonesia on the Indonesian stock market. The data were collected from April 4, 2016, to March 18, 2022. The research methodology involves the Non-Linear Autoregressive Distributed Lag and the Markov Switching Regression (MSR) model. The findings indicate that foreign investor portfolio flows influence the Jakarta Composite Index. There is a tendency for domestic investors to analyze the habits of foreign investors. The study also found that monetary policy is not proven to affect the Jakarta Composite Index, while the USD/IDR exchange rate has an impact on the Indonesian stock market. This indicates many companies listed on the Indonesia Stock Exchange have debt in dollars or are paid in US dollars, making them vulnerable to exchange rate fluctuations.

Impact of Macroeconomic Determinants on Foreign Portfolio Investment in Nigeria

Foreign capital inflows, including foreign portfolio investments (FPI), significantly contribute to filling Nigeria's domestic saving gap and are important sources of capital formation, technological development, innovative capacity, skills building, and organizational improvements. However, exchange rate fluctuations have controversially impacted FPI flows. Some studies found exchange rate changes increased Nigerian FPI, while others determined a negative relationship. This study examined macroeconomic determinants of FPI in Nigeria from 2011-2022 using quarterly data. Applying OLS modeling after confirming variables were integrated at levels and first differences, results showed exchange rates, inflation, and GDP significantly influenced FPI flows. Specification tests validated model stability. Analysis revealed exchange rate fluctuations substantially drove capital inflow and divestment decisions. Suggesting exchange rate uncertainty discourages long-term FPI, findings imply the need for fiscal policies supporting security and business environment certainty to attract foreign investors. Additionally, raising benchmark interest rates above inflation could ensure positive real returns and promote investments. Overall, creating macroeconomic stability through coordinated fiscal, monetary, and exchange rate policies appears critical for Nigeria to reap the development benefits of sustained foreign portfolio inflows. It therefore, suggested that, Fiscal Authority should create an enabling environment, especially by providing adequate security in the country in order to attract and retain foreign investors in Nigeria. Also, the monetary authority should increase the interest rate (MPR) which is the anchor rate in order to have positive rate of return after considering the rate of inflation in the country. In conclusion, the study recommended for further study especially on foreign direct investment in Nigeria.

The effects of Foreign Investment shocks on the US economic growth and risk factors

ABSTRACT We examine the effects of shocks to Total Foreign Investment (TFI) and its components, Foreign Portfolio Investment (FPI), Foreign Direct Investment (FDI), and Bank Credit (BC) on the US economic growth and risk factors by estimating a series of Dynamic Factor Models. We extract comovements from 31 indicators to capture composite indices of output, monetary, and credit risk conditions that measure the US market conditions. We find that positive shocks to TFI, FPI, and FDI increase the real economic activity and lower the aggregate risks in the US. We also find that a shock to FPI results in the largest impacts on output and risk factors as well as their associated indicators, followed by shocks to TFI and FDI, respectively. Furthermore, we find that FPI shocks contribute the most to the historical fluctuations of output, monetary, and risk indicators.

Analysis of Variation in Foreign Inflows by Different Categories of Foreign Portfolio Investors

The liberalisation of Indian financial markets has smoothened the capital flows of international institutional investors, resulting in rising foreign investor participation in the domestic equity and debt markets. Since the reforms of the 1990s, India has become one of the favourite investment hubs of foreign institutional investors (FIIs) across the globe. The research aims to analyse the variation in contribution to foreign inflows by the three different categories of foreign portfolio investments (FPIs) and the determinants of inflows of the categories of FPIs. The study is based on the use of secondary data collected from the National Securities Depository Limited and the Securities Exchange Board of India. One-way ANOVA has been employed to examine the variation in inflows by different categories of FIIs. Autor regressive distributed lag model has been used to understand the factors determining the inflows of FPIs. The results of the study revealed that there exists variation in the inflows of investments among the different categories of FIIs. The variation in inflows by different categories into equity instruments was significant, while the inflows into debt instruments were not significant. Furthermore, the highest inflows were seen from the second category of FIIs. JEL Codes: C32, G2

The exchange rates volatilities impact on the stock and real estate markets in South Africa

Purpose Understanding which market to invest in for a well-diversified portfolio is fundamental in economies that are highly vulnerable to fluctuations in exchange rates. Extant literature that has considered phenomenon hardly juxtapose the markets. The purpose of this study is to examine the effects of exchange rate volatility on the Stock and Real Estate market of South Africa. The essence is to determine whether the fluctuations in the exchange rate influence the markets prices differently. Design/methodology/approach The Generalised Autoregressive Conditional Heteroskedasticity [GARCH (1.1)] model was used in establishing the effect of exchange rate volatility on both markets. This study used monthly South African data between 2000 and 2020. Findings The results of this study showed that increased exchange rate volatility increases stock market volatility but decreases real-estate market volatility, both of which revealed weak influences from the exchange rates volatility. Practical implications This study has implication for policy in using the exchange rate as a policy tool to attract foreign portfolio investment. The weak volatility transmission from the exchange rate market to the stock and real estate market indicates that there is prospect for foreign investors to diversify their investments in these two markets. Originality/value This study investigated which of the assets market, stock or housing market do better in volatile exchange rate conditions in South Africa.

Effect of Private Foreign Capital on Economic Growth in Nigeria: 1999-2021

To facilitate economic growth, there must be an adequate level of savings and investments, and one avenue to improve the level of savings and investments is to attract private foreign capital. Therefore, this study assessed the effect of private foreign capital on economic growth in Nigeria from 1999-2021. The study proposed a model of economic growth using private foreign capital variables such as foreign direct investment (FDI), foreign portfolio investment (FPI), and remittances as predictors. The data were subjected to unit root tests and were found to be stationary in mixed order- at levels and first difference justifying the choice of the Autoregressive Distributed Lag approach for data analyses. The result of the ARDL test revealed that FDI is significant and positively influences economic growth (? = 2.84, p<0.05). Likewise, remittances are significant but have a negative contribution to economic growth (? = -0.71, p<0.05). FPI was found to not affect economic growth in Nigeria (? = 0.02, ns) in the long-run. Also, the estimated coefficients of the short-run relationship for the model revealed that FDI and remittances are significant in impacting economic growth with FDI contributing positively (? = 2.70, p<0.05) and remittances contributing negatively (? = -0.68, p<0.05). FPI still failed to influence economic growth in Nigeria (? = -0.33, ns). Therefore, the study concludes that foreign direct investment and remittances are significant predictors of economic growth. The study recommended that a stable and predictable policy environment needs to be in place to build foreign investors’ confidence.

Impact of Exchange Rates on Returns in Share Market: A Case of Pakistan

The study focused on appraising the influence of exchange rates on returns in the share market: a case of Pakistan. Time-series data spanning 36 years (1980 to 2016) was utilized. To capture the impact of exchange rates on returns in the share market, a theory-based model consisting of six sub-models was planned and estimated through the recursive simultaneous-equations econometric estimation technique. As the data was time series, augmented Dickey-Fuller (ADF) tests were employed to assess the stationarity of the considered variables. The autoregressive distributed lag (ARDL) model was chosen due to some variables being found at different levels, such as me (0) and I (1). Bounds tests in the conclusion declared that the value of F-statistics expressed long-run associations among variables. The results revealed that share market returns were positively influenced by the exchange rate. The model also indicated that share market returns were significantly influenced by Foreign Portfolio Investment (FPI). Furthermore, National Savings (NS) demonstrated a positive and significant association with share market returns (SMR). The study's outcomes also illustrated that National Income (NI) had a positive and significant influence on SMR. The study encompassed well-expanded details and estimation techniques of various models and measures required in this type of research, especially when utilizing time-series data. Based on research findings, it was suggested that potential researchers reproduce this research to achieve a better and relatively well-conceived, well-estimated model on the topic. Additionally, it was recommended that public and private sector planners and researchers seek guidance not only on statistically significant exogenous variables but also on other explanatory variables for their effects on the endogenous variables.

Foreign Investment Flows and Stock Market Performance in Nigeria

This study looks at how foreign investment flows affected Nigeria’s stock market performance from 1994 to 2023. The paper utilised an ex-post facto research approach, and the Central Bank of Nigeria (CBN) bulletin, 2023, offered the data for analysis. Market capitalisation (MCAP) was the dependent variable in the study, and the independent variables used to measure foreign investment flows were foreign direct investment inflows (FDINF), outflows (FDIOUF), inflows from foreign portfolio investments (FPINF), and outflows from foreign portfolio investments (FPIOUT). The study tested the proposed hypotheses using the Ordinary Least Squares estimation approach. In order to determine the dependent variable, market capitalisation, the research examined the effects of four independent variables: FPI inflow, FDI inflows, and FPI outflows. The results show that the influx of FDI has little effect on market capitalisation. Outflows of FDI have a big effect on market capitalisation. Inflows of foreign portfolio investments have little effect on market capitalisation. Outflows from foreign portfolio investments dramatically increase the capitalisation of the stock market. As per the r2, changes in foreign investment variables in Nigeria may account for around 59% of the variations in stock market performance within the Nigerian economy. According to the study’s findings, foreign investment flows significantly affect Nigeria’s market capitalisation. Suggestions include promoting foreign direct investment inflows continuously, encouraging domestic companies to invest overseas, improving market transparency to draw in foreign portfolio investment inflows, and cautiously promoting outward investments to avoid excessive capital outflows.

An Empirical Investigation of the Nexus Among Foreign Portfolio Investment, Stock Market Growth and Domestic Investment in Nigeria

The study investigated the nexus among foreign portfolio investment, stock market growth and domestic investment in Nigeria from 1986 to 2022 using annual time series data. The study was anchored on the theoretical foundations of the foreign capital movement and the Tobin’s Qtheory of investment. The employed the Structural Vector Autoregressive (SVAR) to analyze the data. Findings of the study revealed that, there is a positive pass-through effect of foreign portfolio investment to domestic investment through the stock market growth in Nigeria. The study concluded that, foreign portfolio is important in stimulating domestic investment in Nigeria. Based on these findings, the study made the following recommendations. The government through the ministry of trade and investment in conjunction with the Central Bank of Nigeria (CBN) and the Security and Exchange Commission (SEC) should create market access by liberalizing the capital market by expanding the shareholdings of the foreign investors beyond the existing 10% to attract more inflows of foreign portfolio investment. Second, to retain foreign portfolio investment and avoid frequent investment rebalancing in the stock market, the government through the National Assembly should enact laws that ensure transparent regulatory framework in the stock market in the country. This would enable foreign investors to have a clear understanding of the rules and procedures governing their investments, as well as the regulatory framework in which they operate. This requires strong legal frameworks that safeguard investors’ rights, ensure fair treatment, and provide dispute resolution mechanisms.

Foreign Investment and Capital Market Growth in Nigieria

The study of foreign investment and capital market growth in Nigeria was necessary to examine whether Foreign Direct Investment and Foreign Portfolio Investment enhanced Market Capitalization in Nigeria from 1999 to 2022. Auto-regression distributive lag was used with E view 10 statistical tool while the data source is secondary. The study is motivated by the fact that using foreign investment funds can boost the growth of capital market in Nigeria. The statistical result shows that FDI has positive and significant effect on Market Capitalization while FPI ,interest rate were not statistically positive and has no significant effect on Market Capitalization in Nigeria. It was concluded that foreign investments was partly positive and has significant effect on the growth of Nigerian Capital Market. The study recommended policymakers to improve or create investment friendly policies, strategies to attract financial intermediaries towards investment for more liquidity effeciency in the Nigerian firms, since investment increases liquidity of domestic capital markets.and can help develop market efficiency. Utilization of foreign direct investment funds contributes to the market liquidity effeciency to enable capital market growth in Nigeria. Moreso, foreign portfolio investment having, strong and well-regulated financial markets are necessary to deal with the inherent volatility. The financial system must have the capacity to assess and manage risks if it is to prudently and productively invest capital flows into foreign or domestic capital market.

The Impact of Cryptocurrency on Foreign Portfolio Investment in Nigeria

The Impact of Cryptocurrency on Foreign Portfolio Investment in Nigeria

Asymmetric Analysis of the Impact of Foreign Capital Inflows on Economic Growth in Nigeria

Foreign capital inflows remain volatile and their impact on economic growth remains uncertain due to persistent challenges relating to policy inconsistence insufficient infrastructure and fluctuations in Global oil price. The volatility of these inflows posed challenges, raises concern on their impact on economic growth. This study examined the impact of foreign capital inflows on economic growth in Nigeria from 1990 – 2023.The variables of interest are real gross domestic product (RGDP), foreign direct investment (FDI), remittance (REM) foreign portfolio investment (FPI) official development assistance (ODA) external debt (ED) government expenditure on health (GEH) and government expenditure on education (GEE).This study employed a Nonlinear Autoregressive Distributed lag (NARDL) model and Granger causality test. The finding from the NARDL model showed that Foreign Direct Investment, Remittances, Official Development Aid, External Debt, government expenditure on health, and government expenditure on education all exhibit substantial impacts, with positive changes in these variables associated with increased economic growth, and negative changes leading to decreased economic growth in both short and long run period. The finding further revealed significant asymmetric impacts between Foreign Direct Investment, Remittances, Official Development Aid, government expenditure on health, and government expenditure on education with exception of External debt in the short run .This study recommends that to unlock Nigeria’s full growth potential, policymakers should boost absorptive capacity of the economy through improve infrastructure, security, and legal frameworks to effectively utilize incoming capital and accelerate sustainable economic growth. Furthermore, prioritize health and education spending to develop a skilled and healthy workforce, ultimately boosting domestic activity and productivity.

What Determines Egypt’s Demand for Foreign Reserves?

Objective: The main objective of this paper is to identify the determinants of the demand for foreign reserves in Egypt. Methods: The buffer stock model, quarter-century data spanning over the past 20 years, and Auto-Regressive Distributed Lag (ARDL) regression are all employed to estimate Egypt's demand function for foreign reserves, assess its stability, and predict how swiftly it may change if the underlying Cointegrated connection is disturbed. Results: The results reveal that exports and imports have elasticities of demand for foreign reserves of 1.16 and -3.69, respectively. Moreover, Egypt's foreign reserve assets have notably increased due to foreign direct investment and foreign portfolio investment growth. Lastly, the demand function for foreign reserves is steady, and in the event of a shock, it returns to its steady state in less than two years. Conclusion: To improve Egypt's foreign reserve holdings, policymakers should concentrate on measures encouraging exports and attracting foreign investment.

DO DIFFERENT SECTORS AFFECT EQUITY RISK PREMIUMS IN EMERGING MARKETS? EVIDENCE FROM ASIA

This paper explores intricacies of the higher equity risk premia of emerging Asian economies within the context of industrial composition. The conventional ex-post empirical analysis is executed to scrutinize the impact of industries on the country's stock performance, diverging from the contemporary literature on finance, which was restricted to "total market indexes." By utilizing the DataStream’s Total Return Indices (TRIs) data of emerging market industries, this study highlights the contribution of various industries towards higher equity risk premiums across prominent Asian emerging countries. The study unearths several salient empirical findings. Primarily, the study confirms the "high-volatile high-performance nature" in conjunction with the time-varying dynamics of excess returns for emerging markets at the industry level. Secondly, the study's findings identify the industries accountable for the most significant contribution to higher stock premia of emerging markets at both the country and dynamic context levels. Thirdly, we observe that certain industries demonstrate greater exposure to global factors than others. It is, therefore, argued that these observations provide a crucial indication for international portfolio diversification. The investigation of diversification opportunities due to the impact of global factors on country indexes, and the existence of some industries that offer little but advantageous insurance components provide valuable insights for the higher equity premia of emerging markets. The overall study findings suggest that foreign portfolio investors must not only diversify across countries but also across industries to generate augmented returns in emerging stock markets.

Foreign Investments and Stock Market: Evidence From Palestine

Purpose: This study aims to examine the association between the different forms of inbound foreign investments and the Palestine Exchange (PEX) index to shed light on the nature of that impact.
 
 Theoretical Framework: Several academic studies have examined stock market index factors. Chen, Roll, and Ross's (1986) seminal study on macroeconomic conditions and U.S. stock returns provides an example. Interest rate, inflation, industrial production, risk premium movements, and dividend yield positively explain expected stock return. Abusharbeh and Karim (2016) found that interest and consumer price index positively affect banking and investment firm profits on The Palestine Exchange (PEX). Shahbaz (2013) examined how foreign direct investment affects Pakistan's stock market. Results supported foreign direct investment's stock market complementarity.
 
 Design/Methodology/Approach: The market index and panel quarterly data for inward foreign investments are used in this study. From 2009 to 2022, end-of-quarter data were collected on total inward foreign investments, their sub-components (direct investments, stock portfolio investments, and currency and deposits in Palestine), and the market index (Al-Quds index) closing value. Fifty-six observations were gathered.
 
 Findings: The study found that the overall model integrating all three types of inward foreign investments significantly explains the market index. Foreign portfolio investments (FPI) are significantly associated with the stock market index. However, the results showed that inward foreign direct investments (FDI) and foreign deposits and currency investments (FCI) have no significant impact on the stock market index, indicating that they do not complement or substitute each other.
 
 Research, Practical & Social Implications: This study can help the stock market, regulators, and policymakers create incentives and regulations to attract different forms of inward foreign investments. It also examines why foreign direct investments (FDI) and foreign deposits and currency investments do not complement or substitute stock market development.
 
 Originality/Value: This study provides empirical evidence on the impact of the different forms of foreign investment in Palestine on the stock market. Further research is recommended to explore additional variables that might be significant, such as market capitalization and market volume.

Bilateral investment treaties and portfolio investment

We analyze the effect of bilateral investment treaties (BITs) on bilateral foreign portfolio investment in equity and debt securities. We find that expropriation risk and the level of a BIT’s investor protection are complementary. Applying a Poisson Pseudo-Maximum-Likelihood model to a panel of 60 home and 39 host countries from 2002 to 2017, we find that host countries receive 40% more bilateral equity investment when they protect foreign investors with a BIT. This effect almost doubles when investment protection of BITs is strong, and the political risk of the host country is high.