Foreign Fund Flows and Equity Prices During COVID-19: Evidence from India

Document Type

Article

Publication Title

Emerging Markets Finance and Trade

Abstract

We study the period of the COVID-19 outbreak to assess the impact of foreign institutional investor (FII) flows on asset prices in an emerging market. In a dataset of stock-level foreign fund flows on Indian equities, we show that stocks experiencing abnormally high innovations in foreign fund flows face a permanent price increase (an "information" effect), whereas stocks experiencing abnormally low (negative) innovations in foreign fund flows suffer a partly transient price decline. During the COVID-19 outbreak, the immediate price effects were exaggerated and followed by higher transient volatility. Our methodology shows the efficacy of stabilization policies, initiated notably by the Federal Reserve, in dampening the relation of foreign fund flows and equity prices in the immediate aftermath of the COVID-19 outbreak.

Publication Date

3-10-2022

Publisher

Taylor and Francis

Volume

Vol.59

Issue

Iss.8

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