Estimating Changing Significance of Determinants of FII Flows to India over Different Time Periods in a Vector Autoregressive Framework Using Daily Data

Tamal Datta Chaudhuri, Bidisha Mukhopadhyay and Payal Maskara

International Journal of Financial Economics, 2014, vol. 2, issue 4, 156-168

Abstract: This paper aims at exploring the causal relationship between net foreign institutional investment flows to the Indian equity market with its possible covariates based on daily data for the period September 2008 to July 2013. The data has been analyzed in a Vector Autoregressive framework for determining the existence of long run relationships. Augmented Dickey Fuller (ADF) test and Johansen co-integration technique have been adopted for stationary test and co-integration. The explanatory variables chosen are domestic and US equity market returns, historic volatility of both domestic and US equity market returns, expected volatility of both domestic and US equity markets and the rupee dollar exchange rate. The study has been done for different time phases of Indian stock market sentiment to identify whether the explanatory variables chosen differ in their explanation of FII net inflows, controlling for market sentiment.

Keywords: FII; returns; exchange rate; bullish; bearish; implied volatility; VAR; ADF test (search for similar items in EconPapers)
Date: 2014
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