The study investigates the nonlinear effects of foreign portfolio investment on the Nigerian stock market. Quarterly data was sourced from CBN statistical bulletin spanning from first quarter of 2005 to last quarter of 2022. Econometric pretest was conducted. Results from the NARDL model show significant persistence in the All Share Index (ASI), where past values strongly influence current values, aligning with momentum and short-term dynamics studies. Bond Portfolio Foreign Investment (BPFI) has a slightly positive but not robust effect on ASI, serving more as a stabilizer than a driver. Equity Portfolio Foreign Investment (EPFI) lacks an immediate impact but may affect ASI with a delay, illustrating the complex influence of foreign equity on market indices. The analysis of market capitalization (MCAP) reveals that while immediate increases in BPFI boost MCAP, lagged increases may cause reversals, and EPFI’s effects suggest initial destabilization followed by stabilization. These results reflect the transient and sometimes destabilizing effects of foreign capital flows in emerging markets. The study recommends that policymakers develop strategies to manage both short-term and long-term impacts of foreign investments. This could include controlling the pace of capital flows and creating incentives for long-term investments to reduce market volatility and enhance stability.
Keywords: Asymmetry, portfolio investment, stock market
