MERI-Journal of Management & IT

Open Access Open Access  Restricted Access Subscription Access
Open Access Open Access Open Access  Restricted Access Restricted Access Subscription Access

Causality between Foreign Institutional Trading and Stock Market Retruns:A Study of S&P CNX Nifty


Affiliations
1 DIAS, Delhi, India
     

   Subscribe/Renew Journal


Institutional investments have acquired a significant role in the Indian securities market. This study investigates the trading behaviour of foreign institutional investors (FIIs) in relation to Indian stock market returns as proxied by CNX Nifty and also analyses the interrelationship between both the returns and the investment patterns. The purpose of this paper is to inspect the direction of causal relationship between foreign institutional investment stock market returns in the Indian context. Various econometric tools like Unit ischolar_main test, Regression analysis and Granger Causality test have been used for the analysis. The results revealed that there exists a Uni- directional causality from FII ratio of investment to Nifty returns representing Indian stock market return. In general, the FIIs seem to be following the Indian stock market returns. The analysis on the basis of simple regression model reveals that there exists a bi-directional causality between FIIs investments and Nifty returns. It confirms the applicability of Price pressure hypothesis as well as Feedback trading hypothesis in Indian stock market return.

Keywords

Feed-Back Trading, Institutional Investors, CNX Nifty, Foreign Institutional Investors, Causality.
User
Subscription Login to verify subscription
Notifications
Font Size

  • Agarwal, T. (2013), “ Foreign Institutional Investment: A study of correlationship with Mutual Funds investment and Sensex”, Researchers World- Journal of Arts, science and Commerce, Vol. IV, No.3, pp.63-69.

  • Aggarwal, K. (2011), “The Determinants of Foreign Institutional Investors in India”, Ph.D. Thesis, Shri Jagdish Prasad JhabarmalTibrewala University.

  • Alexakis, C., Niarchos, N., Patra, T. and Poshakwala, S. (2005), “The Dynamics between Stock returns and Mutual Fund Flows: Empirical Evidence from the Greek Market”, International review of Financial Analysis, No.14, pp. 559-569.

  • Ansari, N. (2013), “An Analytical Study of Functioning of Mutual Fund Industry in India”, Ph.D, Thesis, Saurashtra University.

  • Aswini.A and Kumar , M. (2014), “Impact of Foreign Institutional Investors in India”, Global Journal of Finance and Management, vol. 6, No.8, pp. 765 – 770.

  • Bose, S., (2012), “Mutual Fund Investments, FII Investments and Stock Market Returns in India” Money & Finance, ICRA Bulletin, September 2012.

  • Chang, E.C. and Wang, Y. (2002), “A study of Mutual Fund Flow and Market Return Volatility”, available online at www.hiebs.hku.h/working-paper-updates/pdf/wp1065.pdf., accessed on November 19, 2014.

  • Chauhan, A.K., Garg, A., (2010), “Feed-back trading behavior of Foreign Institutional Investors and local mutual funds in Indian stock market: An Empirical evidence”, Journal of Applied Research in Finance, vol. II, issue 2, pp. 110-120

  • Choe, H., Kho,B., and Stulz,R., (2001), “Do domestic investors have more valuable information about individual stocks than foreign investors?” NBER working paper, No. 8073.

  • Diaconasu (2011), “ The role of mutual funds in U.S. economy”, The Annals of The "Stefan cel Mare", Vol.11, No.2, pp. 239-244.

  • Goel,S. (2013), “ Performance of Mutual Funds and Investors’ behavior”, Ph.D Thesis, Jaypee Institute of Information Technology.

  • Gupta, A.(2001), “Does the stock market rise or fall due to FIIs in India, Researchers World- Journal of Arts, science and Commerce, Vol. II, No.2, pp.99-107.

  • Gupta, O.P., Gupta,A., Sikdar,C., and Mahapatra, T., (2007), “ Indian Stock Market- An empirical study”, Vol.20, pp. 92-101.

  • Krugman,P. (1998), “Saving Asia: It’s time to get Radical’, Fortune, September 7.

  • Loomba, J.(2012), “ Do FIIs impact volatility on Indian stock market”. International Journal of marketing, Financial services and management research, Vol.1, No.7, pp. 80-93.

  • Luhar, A. and Bhide, K. (2012), “ Evaluating role of Foreign Institutional Investors and Mutual funds in changing market scenario”, Abhinav Journal, Vol. 1, No.4.

  • Natalie Y. Oh. and Parwada, J. T., (2007), “ Relations between mutual fund flows and stock market returns in Korea” Journal of International Financial Markets, Institutions and Money, 17 (2), pp. 140-151.

  • Naik,P.K. and Padhi,P. (2014), “ The dynamics of institutional investments and stock market volatility: evidence from Foreign Institutional Investors and Domestic Mutual Funds equity investments in India” available online at “ http://ssrn.com/abstract=2388182,accessed on November 18, 2014 at 11:20a:m.

  • Oh, N.Y. and Parwada, J.T. (2007), “ Relations between Mutual Fund Flows and stock market returns in Korea”, International Financial Markets, Institutions and money, No.17, pp.140-151.

  • Prajapati,K.P and Patel, M.K (2012), “Comparative study on performance evaluation of Mutual fund schemes of Indian companies”, Researchers world-Journal of arts, science and commerce, Vol.3, No.3 pp.47-59.

  • Latief, R.and Shah, S.Z.A. (2013), “ Mutual funds herding and its impact on stock returns- evidence from Pakistan, Journal of Basic and applied scientific research, Vol.4, pp. 72-80.

  • Rakowski, D. and Wang (2009), “ The dynamics of short term mutual fund flows and returns: A time series and cross sectional investigation”, Journal of Banking and Finance, No.33,pp. 2102-2109.

  • Srivastav, A. (2013), “Influence of Foreign Institutional Investors in India”, GYAN PRATHA-ACCMAN Journal of management, Vol.5, No. 1.

  • Thenmozhi, M., and Kumar, M. “Dynamic Interaction among Mutual Fund Flows, Stock Market Return and Volatility Accessed from, http://www.nseindia.com/content/research/res_paper_final196.pdf

  • Walia,K., Walia, R. and Jain, M. (2012), “Impact of Foreign Institutional Investment on stock market”, International Journal of Computing and Corporate Research, Vol.2, No.5.

  • Zheng,X. and Edwards, F.R. (1997), “Mutual Funds and stock and bond market stability” available online at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=138487, accessed on November 19, 2014.

  • http://www.bseindia.com/indices/IndexArchiveData.aspx

  • http://www.moneycontrol.com/india/stockmarket/foreigninstitutionalinvestors/12/57/activity/MF/201004

  • http://www.moneycontrol.com/


Abstract Views: 586

PDF Views: 4




  • Causality between Foreign Institutional Trading and Stock Market Retruns:A Study of S&P CNX Nifty

Abstract Views: 586  |  PDF Views: 4

Authors

Kavita Sharma
DIAS, Delhi, India

Abstract


Institutional investments have acquired a significant role in the Indian securities market. This study investigates the trading behaviour of foreign institutional investors (FIIs) in relation to Indian stock market returns as proxied by CNX Nifty and also analyses the interrelationship between both the returns and the investment patterns. The purpose of this paper is to inspect the direction of causal relationship between foreign institutional investment stock market returns in the Indian context. Various econometric tools like Unit ischolar_main test, Regression analysis and Granger Causality test have been used for the analysis. The results revealed that there exists a Uni- directional causality from FII ratio of investment to Nifty returns representing Indian stock market return. In general, the FIIs seem to be following the Indian stock market returns. The analysis on the basis of simple regression model reveals that there exists a bi-directional causality between FIIs investments and Nifty returns. It confirms the applicability of Price pressure hypothesis as well as Feedback trading hypothesis in Indian stock market return.

Keywords


Feed-Back Trading, Institutional Investors, CNX Nifty, Foreign Institutional Investors, Causality.

References





DOI: https://doi.org/10.25089/%2FMERI%2F2018%2Fv12%2Fi2%2F182835