CAPITAL FLIGHT AND DYNAMICS OF STOCK PRICES: A TIME VARIANT ANALYSIS FROM NIGERIA STOCK EXCHANGE
ANYAMAOBI, Chukwuemeka
Department of Banking and Finance, Faculty of Management Sciences,
Rivers State University, Port Harcourt, Nigeria
chukwuemeka.anyamaobi@ust.edu.ng
and
ROGERS-BANIGO, Idanyingi
Department of Banking and Finance, Faculty of Management Sciences
Rivers State University, Port Harcourt, Nigeria
ABSTRACT
This study examined the effect of capital flight on the dynamics of stock prices in the Nigeria Stock Exchange. Time series data was sourced from Central Bank of Nigeria Statistical Bulletin from 1985-2019. All share price index and aggregate stock price were modeled as a function of net error and omission, debt servicing, change in current account balance deficit, change in external reserve and depreciating naira exchange rate per us dollar. The study employed multiple regression models to estimate the relationship that exists between capital flight and dynamics of stock prices. Ordinary Least Square (OLS), Augmented Dickey Fuller Test, Johansen Co-integration test, normalized co-integrating equations, parsimonious vector error correction model and pair-wise causality tests were used to conduct the investigations and analysis. The study found that capital account has positive and significant effect on all share price index and aggregate stock prices. Depreciating naira exchange rate have positive but no significant effect on all share price index but negative and no significant effect on aggregate stock prices. Debt servicing have negative but no significant effect on all share price index but positive and no significant effect on aggregate share prices. External reserves have positive and no significant effect on all share price index and agate stock prices while net official financing have negative and no significant effect on all share price index and aggregate stock prices. From the regression summary, the researcher conclude that capital flight have significant effect on stock prices. The study recommends need for further macroeconomic and financial sector reform to effectively hold up capital flight from Nigeria. The regulatory authorities should ensure that the stock market is sound by promoting stability in the macroeconomic environment to enhance investors’ confidence and attract both domestic and foreign investors to hold their equity investments in the Nigerian Stock Market. Keywords: Capital Flight, Dynamics of Stock Prices, Debt Servicing, Net Errors and Commission, Nigeria Stock Exchange