FII flows in Indian equity markets: boon or curse?

Description

Cross-border capital flows can have significant real effects on economies. For instance, during the early 1990s, several East Asian countries experienced substantial capital inflows, followed by a sharp reversal during the 1997 Asian financial crisis. This sudden flight of capital led to major declines in currency and stock markets across countries such as Indonesia, Thailand, Malaysia, the Philippines and South Korea, and the crisis subsequently spread to Latin America, pushing many developing economies into recession. Such episodes highlight that the initial symptoms of capital flight are often reflected in increased short-term volatility in domestic financial markets. Understanding the impact of foreign capital flows on such volatility is therefore critical. However, limited empirical research exists on the magnitude and persistence of these effects. This study addresses this gap by examining how foreign institutional investor (FII) flows into India influence the performance of domestic equity markets, focusing on both the immediate impact and the durability of these effects over time. ``

Publication Date

1-1-2014

Publisher

NSE NYU Stern School of Business

Keywords

Equity, Equity markets, Foreign fund flows, Capital flows, Financial markets

Source Link URL

https://www1.nseindia.com/research/content/nse_nyu/NSE_NYU_12-13WPCh-1.pdf

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