Relationship between Foreign Portfolio Investments (FPI), Domestic Institutional Investors, and Stock Market Returns in India
Published: 2017
Author(s) Name: Dhananjaya Kadanda, Krishna Raj |
Author(s) Affiliation: Doc. Scholar, Centre for Econ. Studies and Policy, Institute for Social and Econ. Change, Bangalore.
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Abstract
The present article attempts to understand the
relationship between foreign portfolio investment
(FPI), domestic institutional investors (DIIs), and
stock market returns in India using high frequency
data. The study analyses the trading strategies of
FPIs, DIIs and its impact on the stock market return.
We found that the trading strategies of FIIs and DIIs
differ in Indian stock market. While FIIs follow
positive feedback trading strategy, DIIs pursue the
strategy of negative feedback trading which was more
pronounced during the crisis. Further, there is negative
relationship between FPI flows and DII flows. The
results indicate the importance of developing strong
domestic institutional investors to counteract the
destabilising nature FIIs, particularly during turbulent
times.
Keywords: Foreign Portfolio Investors, Foreign Institutional Investors, Domestic Institutional Investors and Market Return
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