Institutional investments have acquired a significant role in the Indian securities market. This study investigates the trading behaviour of foreign institutional investors (FIIs) and domestic institutional investors (DIIs) in relation to Indian stock market returns as proxied by SEBI and also analyses the interrelationship between both the classes of institutional investors. The study uses a broader definition of DIIs that includes not only mutual funds (MFs) but also banks, insurance companies and domestic financial institutions. The results revealed that the investment strategy of Foreign Institutional Investors is significantly affected by the investments of DIs in the Indian stock market. Contrary to findings of earlier studies that FIIs act as positive feedback traders and DIIs act as contrarian investors, the study finds that that there is a positive response of the Investments by DIIs to the monthly returns of Sensex whereas the responses of FIs are found to be in opposite direction. The study observed that the fund flow from Institutional investors are considerably influenced by the lagged returns of Sensex, implying that they have a tendency to follow recent market behaviour. The study also finds that institutional investors, both foreign as well as domestic, do not have a significant impact on Indian stock market.
Feedback Trading by Institutional Investors in Indian Stock Market: an Analysis of Foreign and Domestic Institutional Investors.
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Published 2019-09-30
Abstract
Keywords
Feed-back trading
institutional investors
BSE Sensex
foreign institutional investors
lagged returns
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