DEPARTMENT OF FINANCE

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    EFFECT OF CAPITAL FLIGHT ON DOMESTIC INVESTMENT IN NIGERIA
    (UNIVERSITY OF ILORIN, 2018-01) ADEKUNLE, Ahmed Oluwatobi
    Domestic investment has been one of the perturbing and persistent macroeconomic issues affecting Nigeria for decades. Capital flight represents forgone domestic investment in productive capacity of any economy. Against this background, the study evaluates the effects of capital flight on domestic investment in Nigeria.The objectives were to: (i) investigate the economic variables influencing domestic investments in Nigeria; (ii) evaluate the specific effects of individual components of capital flight on domestic investments in Nigeria; (iii)examine the causal relationship between domestic investments and individual components of capital flight; and (iv) examine the combined effect of foreign direct investment, exchange rate and energy infrastructure on domestic investment in Nigeria. The underpining theory employed is the flexible accelerator theory. The study utilized time series design and annual data covering 37 years obtained from the Central Bank of Nigeria Statistical Bulletin and World Bank data base. Four models were used to capture its four specific objectives using Autoregressive Distributive Lag Model (ARDL) and Vector Error Correction (VEC) Granger causality estimate. The findings of the study were that: (i) capital flight (β = -0.22; p < 0.05), inflation (β = -11.36; p < 0.05), exchange rate (β = -0.09; p < 0.05) have negative influence on domestic investments while savings (β = 1.74; p < 0.05) has positive and significant influence on domestic investmentsin the long run. Cointegration exists among the variables with error correction coefficient 0.80; p = 0.0011 conforming to a priori expectation; (ii) changes in external debt (β = -0.04; p < 0.05), current account balance (β = -0.23; p < 0.05) and foreign direct investments (β = -0.15; p > 0.05) have negative effect on domestic investments in the short run and long run. However, external reserves (β = 0.41; p < 0.05) shows a positive and significant effect on domestic investment. The error correction coefficient estimate is 0.74; p = 0.0011, significant and conform to a priori expectation; (iii) domestic investment does not Granger-cause current account balance (chi-square = 0.47, p = 0.79). Furthermore, domestic investment does not Granger-cause change in external reserves (chi-square= 0.24, p = 0.88). There is a uni-directional relationship between change in external debt and domestic investment, which shows that external debt Granger-causes domestic investment at 0.05 level of significance; (iv) foreign direct investment (β = 1.89; p < 0.05), exchange rate (β = 0.03; p > 0.05) and infrastructure (β = 0.07; p > 0.05). The combined effect is 87%. The study concluded that capital flight, exchange rate and inflation influence domestic investment negatively both in the short and long run. Hence, the study recommended that the repatriation of fled capital can help boost the level of domestic investment in Nigeria. In addition, monitoring imported inflation through goods and services will result to less risk of depreciation in real value of domestic investment since low and stable inflation minimizes and stabilizes budgetary deficit and capital flight.
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    EVALUATION OF THE NIGERIAN STOCK MARKET EFFICIENCY IN THE PRE AND POST FINANCIAL MELTDOWN
    (UNIVERSITY OF ILORIN, 2018-01) NAGERI, Kamaldeen Ibraheem
    The controversy surrounding the interaction between efficient stock market hypothesis and financial crisis suggests mixed results for the Nigerian stock market efficiency prior to the financial crisis. The study evaluated the Nigerian stock market efficiency in the pre and post financial meltdown. The objectives were to: (i) examine the efficiency form exhibited by the market before and after the meltdown; (ii) determine the risk-return relationship before and after the meltdown; (iii) examine the magnitude of volatility persistence before and after the meltdown; and (iv) investigate the impact of good or bad news on return volatility in the Nigerian stock market before and after the meltdown. The study employed ex-post facto research design and covers the Nigerian Stock Exchange (NSE). Secondary data obtained from the NSE were the weekly All Share Index structured into (January 2001-March 2008) pre, (April 2009-December 2016) post financial meltdown, while March 2008 till April 2009 is the meltdown event window. The data, based on market efficiency hypothesis, were subjected to variants of Generalised Auto-Regressive Conditional Heteroscedasticity models which capture heteroscedasticity and volatility clustering in the error term under Gausian, Student’t and Generalised error distributional assumptions. The findings of the study were that: (i) previous week return residual (α_i) pre = 0.275426, 0.362653, 0.311980; post = 0.263188, 0.251813, 0.251136 and previous week return variance (β_j) pre = 0.040516, 0.206215, 0.170131; post = 0.651247, 0.656755, 0.655032; p < 0.05, indicates that theNSE is significantly inefficient in the weak form during pre and post meltdown while the market is efficient in the semi strong form after the meltdown; (ii) the risk-return relationship is insignificantly negative during the pre and post meltdown with standard deviation (σ) pre = -0.919469, -0.294432, -0.252137; post = -0.120140, -0.032694, -0.111328; p> 0.05; (iii) the magnitude of volatility persistence is low (β_j+α_i = 0.315942, 0.568868, 0.482111) and dying very fast (ln⁡(0.5)/ln(α+β) = 0.601588, 1.228752, 0.950062) before the meltdown while volatility persistence is high (β_j+α_i = 0.914435, 0.908568, 0.906168) and dying very slowly (ln⁡(0.5)/ln(α+β) = 7.749086, 7.228902, 7.034845) after the meltdown. The return series revert to its mean in 1 and 7 weeks before and after the meltdown respectively; and (iv) the return volatility responded more to positive (good) news than negative (bad) news of the same magnitude before the meltdown (γ_i = 0.222173, -0.583358, -0.616583; p < 0.05) butinsignificantly responds more to negative (bad) news than positive (good) news of the same magnitude after the meltdown (γ_i = -0.033144, 0.078015, 0.047045; p > 0.05). The study concluded that information is irregular, not opened and unbalanced, leading to information asymmetry and the information environment of the NSE is unconducive and unattractive for shrewd investors. Therefore, the study recommended free flow of relevant securities information through the development and provision of latest and user friendly software application for stock information dissemination. Provision of on-line real time access to share price movement will enable investors make informed decision and also reduce insider trading in the market.