* Dept. of Financial Studies, South Campus, University of Delhi, Delhi.
** Dayal Singh College, University of Delhi, Delhi.
In this paper we attempt to find the key financial determinants of Foreign Institutional Investment Flows (FII) in India and also analyze the impact of these FII flows on stock market characteristics. We observe that the BSE (Bombay Stock Exchange) returns, market volatility, Re- Dollar movements and US Treasury bill rates tend to drive FII flows in the Indian context. Our results are consistent with different observation frequencies (i.e. daily and monthly data). The FII flows do appear to improve the liquidity of the market as shown by higher trading volumes. However, contrary to general belief, they do not significantly increase the stock market volatility. Our finding have important implications for market regulators, domestic financial institutions and other investors as they continuously track FII flows and possibly link it with market performance.
Foreign Institutional Investment, Market Returns, Liquidity, Volatility, Market Efficiency
