An Appraisal of the Effects of Inflation and FDI on Stock Market Performance in Nigeria
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Background of the Study:
Stock market performance in Nigeria is influenced by a myriad of factors, among which inflation and Foreign Direct Investment (FDI) are particularly significant. Rising inflation can erode the real returns of stocks, while steady FDI inflows can enhance market liquidity and investor confidence (Ibrahim, 2023). In recent years, the Nigerian stock market has experienced periods of volatility, reflecting both domestic economic uncertainties and shifts in global investment trends (Obi, 2024). Integrated fiscal and monetary policies have attempted to address these issues, yet the interplay between inflationary pressures and FDI remains complex. Studies indicate that while inflation tends to have a negative impact on market performance by increasing uncertainty, FDI can serve as a counterbalance by providing capital inflows and stimulating corporate growth (Akinola, 2025). This study appraises the dual effects of inflation and FDI on stock market performance by analyzing trends, policy interventions, and empirical data. The discussion focuses on how these economic indicators interact to influence investor behavior, market valuation, and overall financial stability in Nigeria. It further explores the role of regulatory frameworks in moderating the adverse effects of inflation while leveraging FDI for market development (Eze, 2023).
Statement of the Problem:
Despite policy interventions, the Nigerian stock market continues to suffer from volatility attributed to high inflation and fluctuating FDI inflows. The adverse effects of inflation diminish real investor returns and heighten market uncertainty, while inconsistent FDI levels fail to provide a steady capital base for market growth (Chinaza, 2023). This volatility undermines investor confidence and disrupts market stability. There is a critical need to understand the extent to which inflation and FDI collectively impact stock market performance, and to determine why current policy measures have not fully mitigated these effects. Addressing these issues is essential for fostering a more resilient and attractive financial market environment (Udo, 2024).
Objectives of the Study:
- To evaluate the impact of inflation on stock market performance in Nigeria.
- To assess the role of FDI in influencing market dynamics.
- To propose policy recommendations to stabilize the stock market.
Research Questions:
- How does inflation affect stock market performance in Nigeria?
- What is the relationship between FDI inflows and stock market trends?
- Which policy measures can reduce market volatility caused by inflation and variable FDI?
Research Hypotheses:
- H1: High inflation negatively impacts stock market performance.
- H2: Increased FDI inflows positively influence stock market stability.
- H3: Coordinated fiscal policies can mitigate the adverse effects of inflation on the stock market.
Significance of the Study:
This study is significant because it appraises the intertwined effects of inflation and FDI on the Nigerian stock market. The research findings will help policymakers and market regulators develop targeted interventions to enhance market stability, encourage investor confidence, and foster a more robust financial sector (Okeke, 2024).
Scope and Limitations of the Study:
The study is confined to analyzing the effects of inflation and FDI on stock market performance in Nigeria, without considering broader global financial trends.
Definitions of Terms:
• Inflation: The sustained increase in the general price level of goods and services.
• FDI: Investments made by foreign entities in the domestic economy.
• Stock Market Performance: The overall movement and valuation trends of a country’s equity markets.
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