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Foreign Institutional Investors and Macroeconomic Variables In India: A Study of Causal Relation

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  • B S Bodla
  • Ashish Kumar

Abstract

Foreign capital inflows through FIIs, in India, are important from the policy perspective, especially when the country has emerged as one of the most attractive investment destinations in Asia. In order to formulate policy regarding FIIs, it is essential to determine their relation with economic variables. For facilitating the above purpose the monthly data sets pertaining to stock market capitalization, trading volume, FIIs flows and other related variables have been taken for a period of 15 years ranging from January 1993 to December 2007. The same has been analyzed by using the Granger Causality Test to determine the relation of FII purchase, sales and net investment with stock market capitalization and trading volume. The study found that the net investment made by the foreign institutional investors (FIIN) in Indian stock market proved as a casual force of Market Capitalization but in case of trading volume, FIIs investment turned as a result of trading volume.

Suggested Citation

  • B S Bodla & Ashish Kumar, 2009. "Foreign Institutional Investors and Macroeconomic Variables In India: A Study of Causal Relation," Paradigm, , vol. 13(2), pages 80-87, July.
    • Handle: RePEc:sae:padigm:v:13:y:2009:i:2:p:80-87
    DOI: 10.1177/0971890720090211
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