Research Article

Foreign Portfolio Investments and Stock Market Returns in Nigeria

Isma'il Tijjani Idris1*, Gambo Zakari Babale2, Yusuf Ibrahim Kofarmata3
1 Department of Finance, Faculty of Management Sciences, Ahmadu Bello University-Zaria, Nigeria
2 Department of Finance, Faculty of Management Science, Ahmadu Bello University-Zaria, Nigeria
3 Department of Economics, Faculty of Social and Management Sciences, Northwest University Kano - Nigeria
* Corresponding author: ismaildel@yahoo.com
Published: Aug, 2025
DOI: 10.67203/jarmf.2025.pjzc0cj5
Pages: 20-23

Abstract

Stock market returns tend to react differently to foreign portfolio investment (FPI) inflows, particularly in emerging markets where capital flows are often volatile. This study examines the effect of foreign portfolio investment inflows on stock market returns in Nigeria using monthly data from January 2014 to March 2021. The Autoregressive Distributed Lag (ARDL) modelling framework is employed to distinguish between short-run and long-run dynamics. The empirical findings indicate that foreign portfolio investment does not exert a statistically significant effect on stock market returns in the short run, reflecting the transitory and volatile nature of portfolio flows. However, in the long run, FPI inflows exhibit a positive and statistically significant relationship with stock market returns, suggesting that sustained foreign participation enhances market performance over time. In addition, periods of economic crisis are found to have a significant negative effect on stock market returns, underscoring the vulnerability of the Nigerian stock market to macroeconomic shocks. Based on these findings, the study recommends that policy authorities prioritize macroeconomic stability and deepen domestic capital market development to reduce excessive dependence on volatile foreign portfolio flows, particularly during periods of economic uncertainty. Strengthening domestic investment capacity would help cushion the adverse effects of external shocks on stock market performance.

Keywords

Foreign portfolio investment; stock market returns; economic crisis; ARDL; Nigeria.

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How to Cite

Idris, I. T., Babale, G. Z., & Kofarmata, Y. I. (2025). Foreign Portfolio Investments and Stock Market Returns in Nigeria. Journal of Actuarial, Risk Management and Finance, 1(1), 20-23. https://doi.org/10.67203/jarmf.2025.pjzc0cj5

I. T. Idris, G. Z. Babale, and Y. I. Kofarmata, "Foreign Portfolio Investments and Stock Market Returns in Nigeria," Journal of Actuarial, Risk Management and Finance, vol. 1, no. 1, pp. 20-23, August 2025. doi: 10.67203/jarmf.2025.pjzc0cj5

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