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Foreign Investors Under Stress: Evidence from India

Author

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  • Patnaik, Ila

    () (National Institute of Public Finance and Policy)

  • Shah, Ajay

    () (National Institute of Public Finance and Policy)

  • Singh, Nirvikar

    (University of California, Santa Cruz)

Abstract

Emerging market policy makers have been concerned about the financial stability implications of financial globalisation. These concerns are focused on behaviour under stressed conditions. Do tail events in the home country trigger off extreme responses by foreign investors - are foreign investors `fair weather friends'? In this, is there asymmetry between the response of foreign investors to very good versus very bad days? Do foreign investors have a major impact on domestic markets through large inflows or outflows are they `big fish in a small pond'? Do extreme events in world markets induce extreme behaviour by foreign investors, thus making them vectors of crisis transmission? We propose a modified event study methodology focused on tail events, which yields evidence on these questions. The results, for India, do not support the skeptical perspective on financial globalisation.

Suggested Citation

  • Patnaik, Ila & Shah, Ajay & Singh, Nirvikar, 2012. "Foreign Investors Under Stress: Evidence from India," Working Papers 12/103, National Institute of Public Finance and Policy.
  • Handle: RePEc:npf:wpaper:12/103
    Note: Working Paper 103, 2012
    as

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    References listed on IDEAS

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    Cited by:

    1. Radhika Pandey & Gurnain Pasricha & Ila Patnaik & Ajay Shah, 2015. "Motivations for Capital Controls and Their Effectiveness," Staff Working Papers 15-5, Bank of Canada.
    2. Isabelle Aranditha Gusdinar & Deddy Priatmodjo Koesrindartoto, 2014. "Institutional Investors Trading Strategy in Indonesia’s Government Bond Market During the 2008 Crisis," Asian Academy of Management Journal of Accounting and Finance (AAMJAF), Penerbit Universiti Sains Malaysia, vol. 10(1), pages 21-44.
    3. Ashish Kumar Garg & Subrata Kumar Mitra & Dilip Kumar, 2016. "Do foreign institutional investors herd in emerging markets? A study of individual stocks," DECISION: Official Journal of the Indian Institute of Management Calcutta, Springer;Indian Institute of Management Calcutta, vol. 43(3), pages 281-300, September.

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