Orthodox Cross-border Investment Vehicles and Capital Markets Innovations: The Nigerian and Kenyan Experience

This study assessed how Orthodox (traditional) cross-border investment vehicles affected the performance of the capital markets in Kenya and Nigeria between January 2011 and December 2020. The conventional cross-border investment vehicles were the exchange rate, monetary policy rate (also called the Central Bank rate in Kenya), inflation rate, crude oil price, and credit rating. The derivatives market was used to gauge the performance of the capital markets. To find the partial coefficients of the endogenous variables, an ex post facto research design was employed in a multiple regression analysis framework. First, diagnostic tests were conducted using the Augmented Dickey-Fuller technique, which involved pretesting the data for unit root. The series' degree and sequence of integration were then established. According to the test, the data series had mixed integration, which made the Autoregressive Distributed Lag (ARDL) model necessary. According to the results of the ARDL boundaries test, there was a long-term association between the impact of traditional cross-border investment vehicles and the performance of the capital markets in Kenya and Nigeria. According to long-term projections, traditional cross-border investment vehicles have different effects on the performance of the capital markets in Kenya and Nigeria. In particular, the long-term projections indicated that the exchange rate and monetary policy dynamics had a greater impact on the Nigerian capital market than on the Kenyan one. However, the 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. When it came to credit rating, the Nigerian capital market was severely impacted, but the Kenyan capital market appeared to be less affected. After a relatively brief shock, it was found that all the error correction models automatically adjusted to equilibrium. Conventional cross-border investment vehicles also showed time-varying effects at various lag lengths, according to the error correction models.