Feedback Trading by Institutional Investors in Indian StockMarket: an Analysis of Foreign and Domestic InstitutionalInvestors.

Dr. Kavita

Articles 31th Edition of DTR Apr 2019 – Sep 2019

Feedback Trading by Institutional Investors in Indian StockMarket: an Analysis of Foreign and Domestic InstitutionalInvestors.

Authors

DR

Dr. Kavita

Assistant Professor, Delhi Institute of Advanced Studies, Rohini ,Delhi, India

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Published 2026-04-02

Abstract

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.

Keywords

Feed-back trading, institutional investors, BSE Sensex, foreign institutional investors, lagged returns

References

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Dr. Kavita . (2026). Feedback Trading by Institutional Investors in Indian StockMarket: an Analysis of Foreign and Domestic InstitutionalInvestors.. DIAS Technology Review, 16(1).

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[1] i. Agarwal, T. (2013), “Foreign Institutional Investment: A study of correlationship

[2] with Mutual Funds investment and Sensex”, Researchers World- Journal of Arts,

[3] science and Commerce, Vol. IV, No.3, pp.63-69.

[4] ii. Aggarwal, K. (2011), “The Determinants of Foreign Institutional Investors in

[5] India’, Ph.D. Thesis, Shri Jagdish Prasad Jnabarmal Tibrewala University.

[6] iii. Alexakis, C., Niarchos, N., Patra, T. and Poshakwala, S. (2005),’The Dynamics

[7] between Stock returns and Mutual Fund Flows: Empirical Evidence from the

[8] Greek Market”, International review of Financial Analysis, No.14, pp. 559-569.

[9] iv. Ananthanarayanan, S., Krishnamurti, C., & Sen, N. (2004), “Foreign Institutional

[10] Investors and Security Returns: Evidence from Indian Stock Exchanges’,

[11] Retrieved from http://nzfc.ac.nz/archives/2009/papers/ForeignFundFlow.pdf,

[12] Accessed on 1: May, 2017.

[13] v. Ansari, N. (2013), “An Analytical Study of Functioning of Mutual Fund Industry

[14] in India’, Ph.D, Thesis, Saurashtra University.

[15] vi. Arora, R.K. (2016), “The Relation between Investment of Domestic and Foreign

[16] Institutional Investors and Stock Returns in India’, Global Business Review, Vol.

[17] 17, No.3, pp. 1-11.

[18] vii. Aswini.A and Kumar , M. (2014), “Impact of Foreign Institutional Investors in

[19] India’, Global Journal of Finance and Management, vol. 6, No.8, pp. 765 — 770.

[20] viii. Bose, S., (2012), “Mutual Fund Investments, FII Investments and Stock Market

[21] Returns in India’ Money & Finance, ICRA Bulletin, September 2012.

[22] ix. D

[23] x. Chauhan, A.K., Garg, A., (2010), “Feed-back trading behavior of Foreign

[24] Institutional Investors and local mutual funds in Indian stock market: An

[25] Empirical evidence”, Journal of Applied Research in Finance, vol. II, issue 2, pp.

[26] 110-120

[27] xi. Choe, H., Kho,B., and Stulz,R., (2001),”Do domestic investors have more valuable

[28] information about individual stocks than foreign investors?” NBER working

[29] paper, No. 8073.

[30] xii. Dhingra, V.S., Gandhi, S. and Bulsara, H.P. (2016), “Foreign institutional

[31] Investments in India: An Empirical Analysis of Dynamic Interactions with stock

[32] market return and volatility’, MB Management Review, Vol.28, pp. 212-224.

[33] xiii. Diaconasu (2011),” The role of mutual funds in U.S. economy”, The Annals of The

[34] “Stefan cel Mare”, Vol.11, No.2, pp. 239-244.

[35] xiv. Goel,S. (2013), “ Performance of Mutual Funds and Investors’ behavior’, Ph.D

[36] Thesis, Jaypee Institute of Information Technology.

[37] xv. Gupta, A.(2001), “Does the stock market rise or fall due to FIIs in India,

[38] Researchers World- Journal of Arts, science and Commerce, Vol. II, No.2, pp.99-

[39] 107.

[40] xvi. Gupta, O.P., Gupta,A., Sikdar,C., and Mahapatra, T., (2007), “ Indian Stock MarketAn empirical study”, Vol.20, pp. 92-101.

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

[42] xviii. Loomba, J.(2012), “ Do FIIs impact volatility on Indian stock market”.

[43] International Journal of marketing, Financial services and management

[44] research, Vol.1, No.7, pp. 80-93.

[45] xix. Luhar, A. and Bhide, K. (2012),” Evaluating role of Foreign Institutional

[46] Investors and Mutual funds in changing market scenario”, Abhinav Journal, Vol.

[47] 1, No.4.

[48] xx. Natalie Y. Oh. and Parwada, J. T., (2007),” Relations between mutual fund flows

[49] and stock market returns in Korea” Journal of International Financial Markets,

[50] Institutions and Money, 17 (2), pp. 140-151.

[51] xxi. Naik,PK. and Padhi,P. (2014),” The dynamics of institutional investments and

[52] stock market volatility: evidence from Foreign Institutional Investors and

[53] Domestic Mutual Funds equity investments in India’ available online at “

[54] http://ssrn.com/abstract=2388182,accessed on November 18, 2014 at

[55] 11:20a:m.

[56] xxii. | Oh, N.Y. and Parwada, J.T. (2007),” Relations between Mutual Fund Flows and

[57] stock market returns in Korea’, International Financial Markets, Institutions and

[58] money, No.17, pp.140-151.

[59] xxiii. Prajapati,K.P and Patel, M.K (2012),”Comparative study on performance

[60] evaluation of Mutual fund schemes of Indian companies’, Researchers

[61] worldJournal of arts, science and commerce, Vol.3, No.3 pp.47-59.

[62] xxiv. Latief, Rand Shah, S.Z.A. (2013),” Mutual funds herding and its impact on stock

[63] returns- evidence from Pakistan, Journal of Basic and applied scientific research,

[64] Vol.4, pp. 72-80.

[65] xxv. Rakowski, D. and Wang (2009), “ The dynamics of short term mutual fund flows

[66] and returns: A time series and cross sectional investigation’, Journal of Banking

[67] and Finance, No.33,pp. 2102-2109.

[68] xxvi. Shah, A. (2016), “Indian markets receive highest FII inflows in Asia ex-Japan

[69] since 2007”, Livement, August 01, 2016.

[70] xxvii. Srivastav, A. (2013), “Influence of Foreign Institutional Investors in India’, GYAN

[71] PRATHA-ACCMAN Journal of management, Vol.5, No. 1.

[72] xxviii. Thenmozhi, M., and Kumar, M. “Dynamic Interaction among Mutual Fund Flows,

[73] Stock Market Return and Volatility Accessed from,

[74] http://www.nseindia.com/content/research/res_paper_finall196.pdf

[75] xxix. Walia,K., Walia, R. and Jain, M. (2012), “Impact of Foreign Institutional

[76] Investment on stock market’, International Journal of Computing and Corporate

[77] Research, Vol.2, No.5.

[78] xxx. Zheng,X. and Edwards, ER. (1997), “Mutual Funds and stock and bond market

[79] stability” available online at http://papers.ssrn.com/sol3/

[80] papers.cfm?abstract_id= 138487, accessed on No