In this study, we investigate the role of capital returns and currency value in determining foreign portfolio investments, with a focus on Sub-Saharan African economies where appreciable financial reforms have taken place, and capital markets are effectively operational. These economies are South Africa, Nigeria, Cote d’Ivoire, Mauritius, and Ghana. They have recorded substantial inflows of portfolio investments over time, but the inflows have been highly unstable due to certain factors. In view of the increasing importance of portfolio investments in Sub-Saharan Africa, in this study we employ the methodologies of auto-regressive distributed lag (ARDL) and vector error correction model (VECM) to investigate factors influencing the portfolio investment inflows. The empirical results reveal significant positive impact of capital returns and significant negative impact of currency value, indicating that the two variables play contrasting roles in driving foreign portfolio investments. Financial openness also exerts a positive impact on the investments, but not so significant to qualify as a key driver of foreign portfolio investments. Inflation, however, tends to impair the investments. Adjustment speed of the investments is also found to be low. The results from the two methodologies can be considered largely similar and consistent. More importantly, the results fill a perceived gap in literature by revealing the contrasting role of capital returns and currency value in determining foreign portfolio investments in Sub-Saharan Africa. Following the role played by individual variables in determining foreign portfolio investments, there is need to take appropriate policy measures that would enhance the positive impact and reduce the negative impact of these variables. In this way, the variables will be supported to drive investments to higher levels. Such measures may include reduction in capital gains tax, strengthening the legal framework of property rights, allowing exchange rate to float within reasonable limits, and relaxation of stringent official controls in the financial markets.
