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Market Risk Instruments and Portfolio Inflows in African Frontier Economies

In: Global Financial Crisis and Its Ramifications on Capital Markets

Author

Listed:
  • Kehinde A. Adetiloye

    (Covenant University)

  • Joseph N. Taiwo

    (Covenant University)

  • Moses M. Duruji

    (Covenant University)

Abstract

Financial investments enable portfolio investors to earn above market returns which do not come without risks. The African frontier markets (FMs) are investigated here and this chapter brings into focus the determinants of portfolio flows into these markets. The number of FEs in African investigated is six and two key financial instruments are used as returns: stock market returns and interest rate spread. Other variables used in the study include reserve liquidity, exchange rates and national income. The method of estimation adopted is the Vector autoregression with Granger causality. The results show that the all the variables are significant with the portfolio inflows. Specifically, portfolio funds are income chasing; the liquidity of reserves is also significant for every country among the FEs to enjoy inflows of portfolio funds, impacting on the exchange rates. Stock market returns is also highly significant in the Granger causality tests. Recommendations made include the increase in productivity to increase income and exports in these economies. In addition, African FEs must reduce interest rate margins to increase real production and encourage bonds markets development and thus attract portfolio investment into the sector rather than to concentrate all attention on the equities market.

Suggested Citation

  • Kehinde A. Adetiloye & Joseph N. Taiwo & Moses M. Duruji, 2017. "Market Risk Instruments and Portfolio Inflows in African Frontier Economies," Contributions to Economics, in: Ümit Hacioğlu & Hasan Dinçer (ed.), Global Financial Crisis and Its Ramifications on Capital Markets, pages 371-386, Springer.
    • Handle: RePEc:spr:conchp:978-3-319-47021-4_26
    DOI: 10.1007/978-3-319-47021-4_26
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    Cited by:

    1. Patrick Omoruyi Eke & B. Uzoma Achugamonu & Simon Yunisa & Godswill Osagie Osuma, 2020. "Macroeconomic risks and financial sector stability: the Nigerian case," DECISION: Official Journal of the Indian Institute of Management Calcutta, Springer;Indian Institute of Management Calcutta, vol. 47(3), pages 233-249, September.

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