A STUDY ON EMPRICAL ANALYSIS OF RELATIONSHIP BETWEEN FPI AND NIFTY RETURNS

The study is an attempt to evaluate and analyse the relationship between Foreign Portfolio Investors (FPI) and the Indian stock market returns. With the stable economy, better growth prospects, liberal government policies and many more profitable opportunities. India has become a hot destination for FPI investments. Thus, there is a need to study the impact of these investments on the market returns. Daily data of foreign net investment and Nifty returns, for the period starting from January 2016 to June 2017, has been used for evaluating the presence of feedback trading among the foreign investors. Vector autoregression and Granger causality have been used to test the presence of feedback trading hypothesis and establish the cause and effect relationship among the variables. The results suggest that FPIs are influenced by the Nifty returns but the opposite relationship does not hold. As the frequency of the data is changed to monthly, the feedback trading hypothesis does not hold true.