Influence of Traditional Cross-border Investment Vehicles on Capital Market Performance: Empirical Evidence from Nigeria and Kenya

PDF

Published: 2023-03-13

DOI: 10.56557/jet/2023/v8i18151

Page: 18-30


Daniel U. Sunday

Department of Banking & Finance, College of Management Sciences, Michael Okpara University of Agriculture, Umudike, Nigeria.

Alex E. Osuala *

Department of Banking & Finance, College of Management Sciences, Michael Okpara University of Agriculture, Umudike, Nigeria.

*Author to whom correspondence should be addressed.


Abstract

This study evaluated the influence of traditional cross-border investment vehicles on the performance of the Nigerian and Kenyan capital markets, for the period spanning from January 2011 to December 2020. Exchange rate, monetary policy rate (otherwise known as the central bank rate in Kenya), inflation rate, crude oil price and credit rating were used as the traditional cross-border investment vehicles while capital market performance was proxied by All Share Index. Ex post facto research design was used in a multiple regression analysis framework to determine the partial effects of the endogenous variables on the explained variable. Pretesting was done using the Augmented Dickey-Fuller method to establish the stationarity of the model variables.  The test showed that the data series were of mixed order of integration which necessitated the application of the Autoregressive Distributed Lag (ARDL) model. The ARDL bounds test indicated that the influence of traditional cross border investment vehicles on the performance of the Nigerian and Kenyan Capital markets was bound by a long-run relationship. Specifically, the long-run estimates showed that, whereas the Nigerian capital market was significantly affected by the dynamics of exchange rate and monetary policy more than Kenya, the Kenyan capital market was affected the most by the crude oil price changes and inflation than Nigeria. In terms of credit rating, the Nigerian capital market was largely negatively affected whereas Kenya seemed less volatile. Regarding the speed of adjustment to disequilibrium, it was observed that all the models exhibited an automatic adjustment to equilibrium after very short-run shock. The study concluded that traditional cross border investment vehicles had huge impact on the performance of the two markets and therefore recommended among others that, all the stakeholders should make concerted efforts towards improving the investment climates of East and West African leading stock markets.

Keywords: Investment vehicles, capital markets, volatility, cross-border investment


How to Cite

Sunday, D. U., & Osuala, A. E. (2023). Influence of Traditional Cross-border Investment Vehicles on Capital Market Performance: Empirical Evidence from Nigeria and Kenya. Journal of Economics and Trade, 8(1), 18–30. https://doi.org/10.56557/jet/2023/v8i18151

Downloads

Download data is not yet available.

References

World B. Tools and diagnostics for expanding cross-border investment and maximizing its impact for the local economy. The World Bank Group; 2020.

Javorcik BS, Wei SJ. Corruption and cross-border investment in emerging markets: firm-level evidence. Hong Kong Institute for Monetary Research; 2009.

Ohaeri NV. Foreign portfolio investment, capital flight and capital market performance in Nigeria. Int J Econ Com Manag. 2017;V(9, September).

ISSN 2348-0386.

Hopkins HD, Chaganti R, Kotabe M, Co-editors. Cross border mergers and acquisitions/; Global and Regional Perspective. J Int Manag. Philadelphia. 1999;5(3):207-39.

Sonenshine R, Reynolds K. Determinants of cross border mergers premia. Rev World Econ. 2014;150(1):173-89.

Obstfeld M. The global capital market: benefactor or menace? J Econ Perspect. 1998;12(4):9-30.

Dornbusch R, Park YC, Claessens S. Contagion: understanding how it spreads. World Bank Res Observer. 2000;15(2): 177-97.

Claessens S. Competitive implication of cross border banking. Boston: Kluwer Academic Publishers; 2006.

Micco A, Panizza U, Yañez M. Bank ownership and performance: are public banks different? Inter-American Development Bank; 2004.

Mian A. ’Foreign, Private Domestic, and Government Banks: New Evidence from Emerging Markets,’ unpublished manuscript. University of Chicago; 2003.

Daude C, Fratzscher M. The pecking order of cross-border investment. J Int Econ. 2008;74(1):94-119.

Faroh A, Shen H. Impact of interest rates on foreign direct investment: case study Sierra Leone economy. Int J Bus Manag Econ Res(IJBMER). 2015;6(1):124-32.

Lien D, Zhang M. A survey of emerging derivatives markets. Emerg Markets Fin Trade. 2008;44(2):39-69.

Caporale GM, Pittis N. Nominal exchange rate regime and stochastic behaviour of real variables. J Int Money Fin. 1995;14(3):395-415.

Azid T, Jamil M, Kousar M. A (2005). Impact of exchange rate volatility on growth and economic performance: A case study of Pakistan, 1973-2003. Pak Dev Rev. Winter 2005;44(4).

Monogbe TG, Okah OJ. The consociation between investment, exchange rate, interest rate and economic development in Nigeria (ARDL approach). Saudi J Bus Manag Stud ISSN. 2008:2415-6663(Print).

Chen X, Liang X, Wu H. Cross-border mergers and acquisitions and CSR performance: Evidence from China. J Bus Ethics. 2023;183(1):255-88.

Shen H, Yang Q, Luo L, Huang N. Market reactions to a cross-border carbon policy: Evidence from listed Chinese companies. Br Acc Rev. 2023;55(1):101116.

John EI, Ezeabasili VN, Adigwe PK. Interest rate and stock market performance in Nigeria, South Africa and Ghana: 1986-2018. Int J Bus Manag. 2020;8(2).

Okoro CO. Macroeconomic factors and stock market performance: Evidence from Nigeria. Int J Soc Sci Humanit Rev. 2017;7(1).

Tsaurai A. What are the determinants of stock market development in emerging markets? Acad Acc Financ Stud J. 2018;22(2):1-11.

Adebiyi MA, Abeng MO. The sensitivity of sector stock returns to exchange rate risks in Nigeria. CBN Econ Financ Rev. 2019;57(2):1-26.

Mathieu P, Pani M, Chen S, Maino R 2019. Drivers of cross border investment in sub Saharan Africa. IMF working: Paper WP/19/146.

Okechukwu IA, Samuel Mbadike N, Geoffrey U, Ozurumba BA. Effects of exchange rate, interest rate, and inflation on stock market returns volatility in Nigeria. IJMSBA. 2019;5(6):38-47.

Claessens S, Forbes K, 2001 Eds.), International Financial Contagion, Boston: Kluwer Academic Press.

Monogbe TG, Nduka JA, Onwuka UO. smes funding in Nigeria’s economic development process: (ARDL analysis). International Journal of Advanced Academic Research Social & Management Sciences. 2017;3(1):9849:2488.

Umar LA. Impact of capital market on Nigeria’s economic growth. International Journal of Innovative Research and Creative Technology. 2018;4(1): 29-36.