Abstract: Nigeria, one of the most populace and strongest economies in Africa, has enjoyed tremendous advancements in the growth of its financial system in the past few years due to rising market capitalisation and trade activity. nevertheless, issues that continue to affect market liquidity and trust among investors include infrastructural deficiencies, regulatory ineffectiveness, and economic volatility. These include the lack of a broad range of financial products, the market's limited reach, control by governments, the secondary market's slow growth, asymmetry, and information gaps. This study examines the effect of capital inflows and institutional quality on the stock market capitalization ratio in Nigeria for a period of 30 years, which lapse from 1994 and 2023. An ex-post facto research design was used, while both Error Correction Modelling and Dynamic Ordinary Least Square were the estimation techniques, with the inferences set at 5% significance level. The results show that diaspora remittances (LDR) and foreign portfolio investment (LNFPI) have significant negative effects on the stock market capitalization ratio (SMR). Conversely, foreign aid (LFAD) and foreign direct investment (LFDI) positively influence SMR; however, institutional quality (IQ) negatively affects SMR, indicating governance and institutional inefficiencies may hinder market growth. The study concluded that capital inflows and institutional quality have a significant effect on the stock market capitalization ratio in Nigeria. Therefore, the study recommended that government agencies should establish investor-friendly policies, such as reduced bureaucratic bottlenecks and improved infrastructure, to attract more foreign direct investment (LFDI). This would further enhance financial market performance and overall economic development.

Keywords: Capital Inflow, Foreign Direct Investment, Institutional Quality, Foreign Portfolio Investment, DOLS, Nigeria

Pages: 2715-2726