The Impact of Foreign Portfolio Investments on the Nigerian Stock Market: A Case Study of the Nigerian Stock Exchange
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Background of the Study
Foreign portfolio investment (FPI) has become a vital component of capital inflows in emerging markets, including Nigeria. It plays a critical role in driving stock market liquidity, improving market capitalization, and enhancing economic growth (Adeoye & Salami, 2024).
The Nigerian Stock Exchange (NSE) has attracted foreign investors due to its potential for high returns. However, volatility and regulatory uncertainties pose challenges to sustaining investor confidence. This study examines the impact of FPI on the Nigerian stock market’s performance and stability.
Statement of the Problem
While foreign portfolio investments boost stock market performance, they also introduce vulnerabilities, such as capital flight and market volatility. The Nigerian Stock Exchange has experienced periods of rapid growth followed by sharp declines, often attributed to fluctuations in FPI (Obiora & Bello, 2023).
This study investigates the dual impact of FPI on market growth and volatility, providing insights into its implications for the Nigerian stock market.
Objectives of the Study
- To analyze the impact of foreign portfolio investments on the performance of the Nigerian Stock Exchange.
- To examine the relationship between FPI and stock market volatility.
- To propose measures for enhancing FPI’s positive impact while mitigating risks.
Research Questions
- How do foreign portfolio investments affect the performance of the Nigerian Stock Exchange?
- What is the relationship between FPI and stock market volatility?
- What measures can enhance the benefits of FPI while reducing risks?
Research Hypotheses
- Foreign portfolio investments significantly influence the performance of the Nigerian Stock Exchange.
- There is a significant relationship between FPI and stock market volatility.
- Regulatory measures can enhance the positive impact of FPI.
Scope and Limitations of the Study
The study focuses on the Nigerian Stock Exchange and the role of foreign portfolio investments from 2023 to 2025. Limitations include data access and external economic factors influencing FPI.
Definitions of Terms
- Foreign Portfolio Investment (FPI): Investment in financial assets such as stocks and bonds by investors from other countries.
- Stock Market Volatility: The degree of variation in stock prices over time.
Market Capitalization: The total value of all listed shares on a stock exchange.
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