Impact of Foreign Capital Inflows and Foreign Exchange Rate on Stock Market Returns

Abstract

Stock is one of the key securities traded in the capital market and as such, has attracted the attention of researchers. While it is said to propel economic activities, empirical studies conducted on different countries present divergent outcomes. The effect of foreign capital inflows in the stock market return in emerging economy like Nigeria have so far received inadequate attention in the literature. Thisstudy contributes to the literature by examining a possible determinant of stock market return that has receivedless attention in the literature: foreign investment inflows. The work covered a period of 1990-2017 using annual data from Central Bank of Nigeriastatistical bulletin. Causal research design was used in this study. The study found that foreign direct investment and foreign portfolio investment have positive and significant impact on the stock market return. However, exchange rate has negative but statistically insignificant impact on the stock market return in Nigeria. Based on this finding, it recommends that that policymakers should be concerned with stock market liquidity, given that market capitalization is a strong indicator of stock market development as it is positive and statistically significant. If this can be done, it will help to attract foreign investors into the Nigeria stock market.