Citation:

Omokehinde, Joshua Odutola. "Transmission Mechanisms and Investment Funds Flow in Competing Financial Markets: Evidence from Developed and Emerging Markets" International Research Journal of Economics and Management Studies, Vol. 2, No. 2, pp. 16-32, 2023.

Abstract:

This paper examines transmission mechanisms and the flow of investment funds in competing financial markets from 2000 to 2019 using multiple Least Square regression model, Sharpe’s Capital Asset Price Model and Fama (1970) Return Decomposition model and the findings attest that interest rate on fixed-income securities (especially, on treasury bills) had a high degree of influencing equity prices in the USA, South Africa, and Nigeria financial markets. The nexus between interest on fixed-income securities and the rate of return on equity is inverse in the USA, South Africa, and Nigeria. Nigeria recorded the highest sovereign risk with the consequential higher interest rate on Government fixed-income securities. South Africa recorded the highest equity return of 9.40% and lowest interest on fixed-income securities by the USA (1.73%) as Nigeria paid the highest interest on fixed-income securities (11.05%). While Nigerian equity was less attractive to rational risk-averse investors from its negative market risk premium of -2.89%, the USA equity market was more attractive to risk-loving investors from a 2.34% risk premium. Overall, the USA equity market was more inducive to fund flow as against the Nigerian equity market. Conversely, Nigeria's fixed-income securities attracted more fund flow than the USA’s. However, South Africa maintained balance returns on both equity and fixed-income securities and both attractive to fund flows.

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Keywords:

Fixed-Income Securities, Rate of Return on Equity, Interest on Deposits, Risk-Adjusted Return, Risk-Free Rate, and External Debts.