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The Causal Relationships in Mean and Variance between Stock Returns and Foreign Institutional Investment in India

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  • Takeshi Inoue

    (Takeshi Inoue is at the Institute of Developing Economies, 3–2–2, Wakaba, Mihama-Ku, Chiba, 261–8545, Japan; E-mail: takeshi_inoue@ide.go.jp.)

Abstract

This paper examines the causalities in mean and variance between stock returns and foreign institutional investment (FII) in India. The analysis in this paper applies the cross-correlation function approach from Cheung and Ng (1996), and uses daily data from January 1999 to March 2008 divided into two periods before and after May 2003. Empirical results showed that there are uni-directional causalities in mean and variance from stock returns to FII flows irrelevant of the sample periods, while the reverse causalities in mean and variance are only found in the period beginning with 2003. These results point to FII flows having exerted an impact on the movement of Indian stock prices during the more recent period.

Suggested Citation

  • Takeshi Inoue, 2009. "The Causal Relationships in Mean and Variance between Stock Returns and Foreign Institutional Investment in India," Margin: The Journal of Applied Economic Research, National Council of Applied Economic Research, vol. 3(4), pages 319-337, October.
  • Handle: RePEc:sae:mareco:v:3:y:2009:i:4:p:319-337
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    Cited by:

    1. Kumar, Sundaram, 2009. "Investigating causal relationship between stock return with respect to exchange rate and FII: evidence from India," MPRA Paper 15793, University Library of Munich, Germany.

    More about this item

    Keywords

    Causality; Cross-correlation; Foreign Institutional Investment; India; Stock Price; JEL Classification: E44; JEL Classification: F21;

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements

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