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Causal relationships between Foreign Institutional Investments and stock returns in India

Author

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  • M. Suresh Babu
  • K.P. Prabheesh

Abstract

This paper examines the dynamic interaction between FII flows and stock market returns in Indian stock market. Using daily data from January 2003 to February 2007, VAR framework and Granger causality test, we find the existence of bidirectional causality between FII flows and stock returns. Further analysis through impulse response function indicates that FII flows are more stock return driven. We also find support for information revelation hypothesis and momentum trading hypothesis.

Suggested Citation

  • M. Suresh Babu & K.P. Prabheesh, 2008. "Causal relationships between Foreign Institutional Investments and stock returns in India," International Journal of Trade and Global Markets, Inderscience Enterprises Ltd, vol. 1(3), pages 259-265.
    • Handle: RePEc:ids:ijtrgm:v:1:y:2008:i:3:p:259-265
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    Citations

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    Cited by:

    1. Hemantkumar P. Bulsara & Vaishali Samir Dhingra & Shailesh Gandhi, 2015. "Dynamic Interactions between Foreign Institutional Investment Flows and Stock Market Returns – The Case of India," Contemporary Economics, University of Economics and Human Sciences in Warsaw., vol. 9(3), September.
    2. Mukhopadhyay, Jhuma & Chakraborty, Indrani, 2017. "Foreign institutional investment, business groups and firm performance: Evidence from India," Research in International Business and Finance, Elsevier, vol. 39(PA), pages 454-465.
    3. Sagarika Mishra & Harminder Singh, 2012. "Do macro-economic variables explain stock-market returns? Evidence using a semi-parametric approach," Journal of Asset Management, Palgrave Macmillan, vol. 13(2), pages 115-127, April.
    4. Rabia Najaf & Khakan Najaf, 2016. "Dynamics of the exchange rate in Malaysia," International Journal of Academic Research in Management and Business, International Journal of Academic Research in Management and Business, vol. 1(2), pages 101-112, October.
    5. Santosh Kumar & Tavishi & Raju G & Ashish Khatua, 2012. "Behavioral Modeling Of Foreign Institutional Investor’S In Indian Equity Market," Global Journal of Business Research, The Institute for Business and Finance Research, vol. 6(1), pages 1-8.
    6. Sangram Keshari Jena & Aviral Kumar Tiwari & Shawkat Hammoudeh & Muhammad Shahbaz, 2020. "Dynamics of FII flows and stock market returns in a major developing country: How does economic uncertainty matter?," The World Economy, Wiley Blackwell, vol. 43(8), pages 2263-2284, August.
    7. de Mendonça, Helder Ferreira & Díaz, Raime Rolando Rodríguez, 2023. "Can ignorance about the interest rate and macroeconomic surprises affect the stock market return? Evidence from a large emerging economy," The North American Journal of Economics and Finance, Elsevier, vol. 64(C).
    8. Subrata Kumar Mitra, 2010. "Relationships Among Foreign Institutional Investments, Stock Returns And Currency Change-Over Rates In India," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 4(3), pages 103-112.
    9. Ahmad Danu Prasetyo, 2013. "Foreign portfolio investment performance and investor's trading patterns: empirical study in Indonesian government bonds market," International Journal of Economic Policy in Emerging Economies, Inderscience Enterprises Ltd, vol. 6(3), pages 254-268.
    10. Paulo Ferreira & Marcus Fernandes da Silva & Idaraí Santos de Santana, 2019. "Detrended Correlation Coefficients Between Exchange Rate (in Dollars) and Stock Markets in the World’s Largest Economies," Economies, MDPI, vol. 7(1), pages 1-11, February.
    11. Prabheesh KP, 2021. "Dynamics of Foreign Portfolio Investment and Stock Market Returns During the COVID-19 Pandemic - Evidence From India," Asian Economics Letters, Asia-Pacific Applied Economics Association, vol. 1(2), pages 1-5.

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