Indian Journal of Research in Capital Markets

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Foreign Portfolio Investment and Price Discovery of Indian Equity Stocks


Affiliations
1 Assistant Professor, Amity College of Commerce & Finance, Amity University Kolkata, Major Arterial Road, Action Area II, Rajarhat, Newtown, Kolkata - 700 135 , West Bengal, India
2 Professor, Department of Commerce, University of Calcutta, 87/1, College Street, Kolkata - 700 073, India

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Speed of price correction is an indicator of market efficiency. In this paper, we tried to find whether the speed of price adjustment of Indian equity stocks, measured by Damodaran's price adjustment coefficient (PAC), was indeed enhanced by foreign portfolio holdings. Applying the VAR Granger causality test, we found absence of any influence of FPI holdings in the speed of price corrections in Indian stocks and vice versa. We also observed that the speed of incorporation of stock level information was substantially lower than that of index level information, implying the existence of significant information asymmetry among different groups of investors and slow dissemination of firm specific information.

Keywords

Foreign Portfolio Investment, Information Asymmetry, Price Adjustment Coefficient, Vector Autoregression

C580, G140, G230

Paper Submission Date : May 23, 2018 ; Paper sent back for Revision : June 27, 2018 ; Paper Acceptance Date : June 30, 2018.

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  • Foreign Portfolio Investment and Price Discovery of Indian Equity Stocks

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Authors

Suddhasanta De
Assistant Professor, Amity College of Commerce & Finance, Amity University Kolkata, Major Arterial Road, Action Area II, Rajarhat, Newtown, Kolkata - 700 135 , West Bengal, India
Tanupa Chakraborty
Professor, Department of Commerce, University of Calcutta, 87/1, College Street, Kolkata - 700 073, India

Abstract


Speed of price correction is an indicator of market efficiency. In this paper, we tried to find whether the speed of price adjustment of Indian equity stocks, measured by Damodaran's price adjustment coefficient (PAC), was indeed enhanced by foreign portfolio holdings. Applying the VAR Granger causality test, we found absence of any influence of FPI holdings in the speed of price corrections in Indian stocks and vice versa. We also observed that the speed of incorporation of stock level information was substantially lower than that of index level information, implying the existence of significant information asymmetry among different groups of investors and slow dissemination of firm specific information.

Keywords


Foreign Portfolio Investment, Information Asymmetry, Price Adjustment Coefficient, Vector Autoregression

C580, G140, G230

Paper Submission Date : May 23, 2018 ; Paper sent back for Revision : June 27, 2018 ; Paper Acceptance Date : June 30, 2018.




DOI: https://doi.org/10.17010/%2Fijrcm%2F2018%2Fv5%2Fi2%2F130186