Exchange Rate Dynamics and Foreign Portfolio Investment in Developing Economies: Evidence from Nigeria

Abstract

This studyexamines how exchange rate fluctuations relate to foreign portfolio investment in Nigeria. We analysed the data gathered from the Central Bank of Nigeria, Nigeria Exchange Group and World Development Indicatorsof the World Bank from 2014 to 2021 using GARCH, Johansen Cointegration and Vector Error Correction Model. The result demonstrates a long run relationship between foreign portfolio investment and exchange rate volatility. The result shows that exchange rate volatility adversely impacts foreign portfolio investment flows to Nigeria. In addition, market capitalisation exerts a positive butinsignificant link with foreign portfolio investment in Nigeria. This finding implies that the government, through the Apex Bank,should adopt an improved exchange rate management policy to stabilise the rate. Moreover, it is vital for the stakeholders, especially the policymakers, to continue to develop the capital market and improve the business environment to attract foreign investment inflows. Collapse