Trend In Stock Market Return And FII Investments

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1221641 Chapter: 5 Data Analysis and Interpretation Graph 1: Trend in stock market returns and FII investments Fig 1 depicts the trend in stock market return and FII investments during 2008-09 to 2012-13. Firstly with regard to stock market return, the trend seems to be on a linear path but almost referred as stationary data. On the other, the FII investment over the same period indicates the volatility in nature showing fluctuations periodically over the years. 5.3 Causality Relationship between FII investments and stock market return: The relationship between stock market return and its impact on FII is directly investigated. Therefore, the testable hypothesis focuses on these two economic series. The long-term relationship between stock market return and FII is explored using the concept of cointegration. The concept of cointegration is fundamental to an understanding of the long-run relationships amongst economic time series [Granger 1988]. If the two variables are cointegrated, they must obey an equilibrium relationship in the long run though they may drift apart in the short run. Thus, there is a steady-state relationship between the variables. To achieve the objective, firstly the data was put into a test to know whether the raw data is stationary or not before deciding on cointegration and causality test. Augmented Dicky-Fuller unit root test is applied to test the stationarity of both FII and USD/rupee exchange rate and the result (from E-views statistical software) is given in Table-1 and Table-2 respectively. The unit root test is applied for logarithmic transformation of FII & Stock market return. Table -1 depicts the ADF test result for FII without any difference – i.e., D (0). This is also referred as lev... ... middle of paper ... ...9 (-0.378) -0.900 (-1.858) R2 0.0195 0.054 0.0070 0.0049 0.0089 0.1688 F-statistic * Significant at 5% level, * * Significance at 10 %, 5.12 Interpretation of estimation of OLS regression results The OLS regression result of stock returns for selected pharma industries is presented in Table-4. In view of these results, there exists a non significant (statistically) relationship between FII investments and stock market returns for all six selected pharma industries. In essence, there is statistical evidence to conclude that the stock returns influence the FII investments in pharma sectors. However, this inference is based only a very few selected companies. This is the limitation of the present study. Reference: Suchismita Bose, “Mutual Fund Investments, FII Investments and Stock Market Returns in India”, ICRA Bulletin, Money and Finance, September 2012.
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