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The Dynamics of foreign portfolio inflows and equity returns in India

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Author Info
Amita Batra (Indian Council for Research on International Economic Relations)
Abstract

The Foreign Institutional Investors (FIIs) have emerged as important players in the Indianequity market in the recent past. This paper makes an attempt to develop anunderstanding of the dynamics of the trading behavior of FIIs and returns in the Indianequity market by analyzing daily and monthly data. From our analysis we find that thereis strong evidence of FIIs chasing trends and adopting positive feedback trading strategiesat the aggregate level on a daily basis. However there is no evidence of positive feedbacktrading on a monthly basis. The results of our analysis also indicate that foreign investorshave a tendency to herd together in their trading activity in India. The trading behaviorand biases of the FIIs do not appear to have a destabilizing impact on the equity market

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Paper provided by Indian Council for Research on International Economic Relations, New Delhi, India in its series Indian Council for Research on International Economic Relations, New Delhi Working Papers with number 109.

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Length: 32 pages
Date of creation: Sep 2003
Date of revision:
Handle: RePEc:ind:icrier:109

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  5. Brennan, Michael J & Cao, H Henry, 1997. " International Portfolio Investment Flows," Journal of Finance, American Finance Association, vol. 52(5), pages 1851-80, December. [Downloadable!] (restricted)
  6. Warther, Vincent A., 1995. "Aggregate mutual fund flows and security returns," Journal of Financial Economics, Elsevier, vol. 39(2-3), pages 209-235. [Downloadable!] (restricted)
  7. Russ Wermers, 1999. "Mutual Fund Herding and the Impact on Stock Prices," Journal of Finance, American Finance Association, vol. 54(2), pages 581-622, 04. [Downloadable!] (restricted)
  8. John R. Nofsinger & Richard W. Sias, 1999. "Herding and Feedback Trading by Institutional and Individual Investors," Journal of Finance, American Finance Association, vol. 54(6), pages 2263-2295, December. [Downloadable!] (restricted)
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  11. Hirshleifer, David & Teoh, Siew Hong, 2001. "Herd Behavior and Cascading in Capital Markets: A Review and Synthesis," MPRA Paper 5186, University Library of Munich, Germany. [Downloadable!]
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  12. Michael J. Brennan. and H. Henry Cao., 1997. "International Portfolio Investment Flows," Research Program in Finance Working Papers RPF-271, University of California at Berkeley. [Downloadable!]
  13. Kim, Woochan & Wei, Shang-Jin, 2002. "Foreign portfolio investors before and during a crisis," Journal of International Economics, Elsevier, vol. 56(1), pages 77-96, January. [Downloadable!] (restricted)
    Other versions:
  14. Scharfstein, David S & Stein, Jeremy C, 1990. "Herd Behavior and Investment," American Economic Review, American Economic Association, vol. 80(3), pages 465-79, June.
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  15. John Clark & Elizabeth Berko, 1997. "Foreign investment fluctuations and emerging market stock returns: the case of Mexico," Staff Reports 24, Federal Reserve Bank of New York. [Downloadable!]
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