Influence of Traditional Cross Border Investment Vehicles on Nigeria and Kenyan Capital Market Performance

This study examined how traditional cross-border investment vehicles affected the performance of the capital markets in Kenya and Nigeria between January 2011 and December 2020. Traditional cross-border investment vehicles included the exchange rate, monetary policy rate (also called the central bank rate in Kenya), inflation rate, crude oil price, and credit rating. However, one other variable, stock market returns, was used to measure the success of the capital market. Established economic and financial theory, its application in related research, and the availability of data all influenced the variables' selection. The partial coefficients of the endogenous variables were found using an ex post facto research strategy in a multiple regression analysis framework. The test revealed that the data series had mixed integration, requiring the Autoregressive Distributed Lag (ARDL) model to be applied. According to the results of the ARDL boundaries test, there was a long-term association between the performance of the Nigerian and Kenyan capital markets and the impact of traditional cross-border investment vehicles. Long-term projections showed that the impact of conventional cross-border investment vehicles on the performance of the Kenyan and Nigerian capital markets differed depending on the model. In particular, the long-term projections demonstrated that the exchange rate and monetary policy dynamics had a greater impact on the Nigerian capital market than on the Kenyan one. However, long-term projections indicated that inflation and variations in the price of crude oil had a greater impact on the Kenyan capital market than in Nigeria. Credit rating had a significant negative impact on the Nigerian capital market, but it appeared to have less of an impact on the Kenyan capital market. Regarding the error correction models, it was found that following a relatively brief shock, all the models automatically adjusted to equilibrium. Traditional cross-border investment vehicles also showed time-varying effects at various lag lengths, according to the error correction models.