The Impact of Stock Market Returns on Foreign Portfolio Investment in Nigeria

This research work was designed to investigate the impact of stock market returns on foreign portfolio investment in Nigerian.The objectives of the research are: to identify the relationship between foreign portfolio investment and stock market return, inflation rate and stock market returns and to determine the direction of causality between foreign portfolio investment and stock market returns in Nigeria.The data were collected from Central Bank of Nigeria (CBN) statistical bulletin.The data were consequentially analyzed using E-views statistical package.The methodology used was multiple linear regression analysis to capture the impact of foreign portfolio investment and inflation rate on stock market returns, as well as Granger causality tests to determine the direction of causality between the variables.The results showed that foreign portfolio investment has a positive and significant impact on stock market returns while inflation rate has positive but insignificant impact on stock market returns.In the case of causality test, evidence of the result showed that there is a unidirectional causality running from stock market returns to foreign portfolio investment in the economy, which in turn will foster stock market returns in Nigeria.We therefore recommend that policies that will attract foreign portfolio investment should be pursued in order to enhance stock market returns.