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Abstract

The Positive feedback hypothesis stipulates the strategy of rushing in when the markets are booming and rushing out when the markets are on the decline. The present study empirically documents the static and dynamic interaction between FII flows and returns of various indices of National Stock Exchange, using daily data for the variables from 2000 to 2009. Results indicate that there is evidence of positive feedback trading in Indian context in four selective indices viz. Bank Nifty, CNX Midcap, CNX Nifty Junior, and S&P CNX 500 out of fifteen sampled indices. It is also observed that FIIs are not only causating agents but also the effects of the stock return; and there is selective bidirectional relationship between net FII flows and returns of selected indices viz. CNX Midcap, CNX Nifty Junior, S&P CNX 500 and S&P CNX Nifty out of the (Fifteen) sampled indices.

Keywords

Positive Feedback FII Granger Causality VAR Market Return Impulse Response Function Nifty

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Positive Feedback Strategy of FIIs in Indian Stock Market: A Sectoral Analysis

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