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Impact of foreign institutional investor trades in Indian equity and debt market: a three-dimensional analysis

Author

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  • P. Lakshmi

    (Indian Institute of Technology Madras)

  • M. Thenmozhi

    (Indian Institute of Technology Madras)

Abstract

Rising portfolio flows from foreign institutional investors (FIIs) into the Indian equity and debt market in the recent years have invoked extensive debate among media and academics. The present study lends support to this growing debate through a three-dimensional wavelet analysis that identifies the time, frequency and persistence of the co-movements between FII trading activity and India’s NIFTY index returns for the period between 2000 and 2015. The wavelet coherence findings suggest that persistent interdependence in volatility exists between purchase/sale transactions of FIIs and NIFTY returns at varying frequencies with FII activity leading the volatility co-movement. The findings imply that the Indian equity markets are vulnerable to portfolio flows warranting adequate resilience measures from policy makers.

Suggested Citation

  • P. Lakshmi & M. Thenmozhi, 2018. "Impact of foreign institutional investor trades in Indian equity and debt market: a three-dimensional analysis," DECISION: Official Journal of the Indian Institute of Management Calcutta, Springer;Indian Institute of Management Calcutta, vol. 45(3), pages 225-233, September.
    • Handle: RePEc:spr:decisn:v:45:y:2018:i:3:d:10.1007_s40622-018-0183-y
    DOI: 10.1007/s40622-018-0183-y
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    Cited by:

    1. Saif Siddiqui & Preeti Roy, 2021. "Asymmetric Effects of Exchange Rate and Its Relationship with Foreign Investments: A Case of Indian Stock Market," Vision, , vol. 25(4), pages 415-427, December.

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    More about this item

    Keywords

    Foreign institutional investors; Volatility; Wavelet coherence; NIFTY;
    All these keywords.

    JEL classification:

    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • C40 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - General
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • G1 - Financial Economics - - General Financial Markets
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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