An ARDL co-integration technique to examine the investment behaviour of institutional investors

Pooja Rani, Rachna Agrawal and Taufeeque Ahmad Siddiqui

International Journal of Corporate Governance, 2024, vol. 14, issue 4, 307-328

Abstract: The study examines the relationship between institutional investor trading behaviour and stock indices movement in India using daily trading data of institutional investors and the closing price of the Nifty index from 2000 to 2021. The study employs the autoregressive distributive lag model. It also compares the result with the quantile ARDL model and performs a residual diagnostic to conclude the results of the models. The empirical results suggest that Nifty significantly influences the investment behaviour of institutional investors. In the short run, they adopt momentum trading strategies (knee-jerk reaction to market information, buy-low sell-high) and in the long run, follow value trading strategies (investing in the stocks trading for less than their book value). But, the result of the quantile ARDL shows that institutional investors' trading behaviour is different at different quantiles, and the nature of the relationship is nonlinear. This study represents interesting findings that can be meaningfully contributed to the existing literature. It offers specific insights into the context of growth-oriented companies and new start-up organisations. Individual investors also benefited from this study as they are not certain to invest directly in the stock market.

Keywords: institutional investor; NIFTY index; momentum trading strategies; herding behaviour; value trading strategies; contrarian trader. (search for similar items in EconPapers)
Date: 2024
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