Foreign Portfolio Investment and Stock Market Capitalization in Nigeria

Abstract

This study examined the effect of foreign portfolio investment on stock market capitalization in Nigeria. Time series data were sourced from Central Bank of Nigeria Statistical bulletin. Stock market capitalization was modeled as the function foreign equity investment, bonds, securities and money market investment. Ordinary least square methods of cointegration, granger causality test, and unit root test and error correction model was used. The study found that 64 percent variation in stock market capitalization was traced to foreign portfolio investment in Nigeria. Foreign equity investment, bonds, securities have positive effect while money market have negative effect. From the findings, the study conclude that foreign portfolio investment have significant effect on stock market capitalization in Nigeria. The study recommended as part of its stabilization policy, the Nigeria’s capital market regulatory authorities should give boost to the market, most importantly in the area of international competitive coupon rates and improved external reserve so that foreign portfolio investment inflow to Nigeria will experience boost by foreign investors who seek higher investment.

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