Determinants Of Foreign Institutional Investment In India: An Empirical Analysis
The purpose of the study is to explore the determinants of foreign institutional investments in India through the Autoregressive Distributed Lag (ARDL) bounds testing approach. Using quarterly time series data, the empirical analysis was carried out for the period from January 2004 to December 2011. Our study result shows that exchange rate has significant negative impact on FII inflows both in the short-run and long-run, implying that depreciation of currency adversely affects the FII flows into India. Moreover, the Indian equity market returns has negative short-run and positive long-run effects on FII inflows to India. This confirms the evidence of positive and negative feedback trading hypothesis in the short-run and long-run, respectively. The US equity market returns has positive and significant influence on FII flows in the long-run but positive and insignificant influence on FII flows in the short-run. The risks associated with US equity market encourage foreign institutional investors to invest more in Indian equity markets. Furthermore, domestic inflation exerts negative and positive significant influence on FII flows in the long-run and short-run, respectively. It can be concluded that FII inflows to India are essentially determined by exchange rate, domestic inflation, domestic equity market returns, returns and risk associated with US equity market.
Volume (Year): 5 (2013)
Issue (Month): 3 (December) ()
|Contact details of provider:|| Web page: http://www2.spiruharet.ro/facultati/facultate.php?id=9|
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Lin, Anchor Y. & Swanson, Peggy E., 2004. "International equity flows and developing markets: the asian financial market crisis revisited," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 14(1), pages 55-73, February.
- Gilberto Libanio, 2005.
"Unit roots in macroeconomic time series: theory, implications, and evidence,"
Economics Department, Universidade Federal de Minas Gerais (Brazil), vol. 15(3), pages 145-176, September.
- Gilberto A. Libanio, 2004. "Unit roots in macroeconomic time series: theory, implications, and evidence," Textos para Discussão Cedeplar-UFMG td228, Cedeplar, Universidade Federal de Minas Gerais.
- Bohn, Henning & Tesar, Linda L, 1996. "U.S. Equity Investment in Foreign Markets: Portfolio Rebalancing or Return Chasing?," American Economic Review, American Economic Association, vol. 86(2), pages 77-81, May.
- Inder, Brett, 1993. "Estimating long-run relationships in economics : A comparison of different approaches," Journal of Econometrics, Elsevier, vol. 57(1-3), pages 53-68.
- Glynn, John & Perera, Nelson, 2007. "Unit Root Tests and Structural Breaks: A Survey with Applications = Contrastes de raíces unitarias y cambios estructurales: un estudio con aplicaciones," Revista de Métodos Cuantitativos para la Economía y la Empresa = Journal of Quantitative Methods for Economics and Business Administration, Universidad Pablo de Olavide, Department of Quantitative Methods for Economics and Business Administration, vol. 3(1), pages 63-79, June.
- Bowe, Michael & Domuta, Daniela, 2004. "Investor herding during financial crisis: A clinical study of the Jakarta Stock Exchange," Pacific-Basin Finance Journal, Elsevier, vol. 12(4), pages 387-418, September.
- Tesar, Linda L & Werner, Ingrid M, 1995. "U.S. Equity Investment in Emerging Stock Markets," World Bank Economic Review, World Bank Group, vol. 9(1), pages 109-29, January.
- Froot, Kenneth A. & O'Connell, Paul G. J. & Seasholes, Mark S., 2001.
"The portfolio flows of international investors,"
Journal of Financial Economics,
Elsevier, vol. 59(2), pages 151-193, February.
- M. Hashem Pesaran & Yongcheol Shin & Richard J. Smith, 2001. "Bounds testing approaches to the analysis of level relationships," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(3), pages 289-326.
- Tesar, Linda L. & Werner, Ingrid M., 1995. "Home bias and high turnover," Journal of International Money and Finance, Elsevier, vol. 14(4), pages 467-492, August.
- Bewley, R. A., 1979. "The direct estimation of the equilibrium response in a linear dynamic model," Economics Letters, Elsevier, vol. 3(4), pages 357-361.
- John M. Griffin & Federico Nardari & Rene M. Stulz, 2002. "Daily Cross-Border Equity Flows: Pushed or Pulled?," NBER Working Papers 9000, National Bureau of Economic Research, Inc.
When requesting a correction, please mention this item's handle: RePEc:shc:jaresh:v:5:y:2013:i:3:p:361-375. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Claudiu Chiru)
If references are entirely missing, you can add them using this form.