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Foreign portfolio flows and emerging stock market: Is the midnight bell ringing in India?

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  • Hiremath, Gourishankar S.
  • Kattuman, Paul

Abstract

This paper is concerned with the behavior of foreign portfolio flows, and the interaction between flows and returns, in one of the fastest growing emerging markets, India. We use a combined with, the adaptive market framework to examine the relevant issues. We find that the degree of efficiency of the stock market is time varying, and that inefficiency attracts flows seeking excess returns. But foreign institutional investors do not influence the efficiency of the Indian stock market. There appears to be a contemporaneous relationship between flows and returns volatility with push factors significantly influencing flows. Our findings suggest that the present policy framework in India is in fact effective, and that prudential norms are the best way to deal with volatile portfolio flows.

Suggested Citation

  • Hiremath, Gourishankar S. & Kattuman, Paul, 2017. "Foreign portfolio flows and emerging stock market: Is the midnight bell ringing in India?," Research in International Business and Finance, Elsevier, vol. 42(C), pages 544-558.
    • Handle: RePEc:eee:riibaf:v:42:y:2017:i:c:p:544-558
    DOI: 10.1016/j.ribaf.2017.04.016
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    3. Subhamitra Patra & Gourishankar S. Hiremath, 2022. "An Entropy Approach to Measure the Dynamic Stock Market Efficiency," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 20(2), pages 337-377, June.
    4. Biswabhusan Bhuyan & Subhamitra Patra & Ranjan Kumar Bhuian, 2020. "Market Adaptability and Evolving Predictability of Stock Returns: An Evidence from India," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 27(4), pages 605-619, December.
    5. 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.

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    More about this item

    Keywords

    Foreign institutional investment; Feedback trading; Stock market efficiency; Adaptive market hypothesis; Generalized hurst exponent; Emerging markets;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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