The financial support of the International Growth Centre, and the Sury Initiative on Global Finance and International Risk Management, is gratefully acknowledged. Vimal Balasubramaniam, Vikram Bahure, Jean Paul Rabanal and Anick Yaha provided excellent research assistance. We greatly benefited from the comments of Subir Gokarn, Rakesh Mohan, Tarun Ramadorai and two anonymous referees, on earlier drafts. We are grateful to CMIE and SEBI for help on the dataset constructed for this paper. The opinions expressed and remaining shortcomings are our responsibility alone.
Foreign Investors under Stress: Evidence From India†
Article first published online: 19 SEP 2013
© 2014 The Authors. International Finance published by John Wiley & Sons Ltd
This is an open access article under the terms of the Creative Commons Attribution License, which permits use, distribution and reproduction in any medium, provided the original work is properly cited.
Volume 16, Issue 2, pages 213–244, Summer 2013
How to Cite
Patnaik, I., Shah, A. and Singh, N. (2013), Foreign Investors under Stress: Evidence From India. International Finance, 16: 213–244. doi: 10.1111/j.1468-2362.2013.12032.x
- Issue published online: 19 SEP 2013
- Article first published online: 19 SEP 2013
- International Growth Centre
- Sury Initiative on Global Finance and International Risk Management
Emerging market policy makers have been concerned about the financial stability implications of financial globalization. These concerns are focused on behaviour under stressed conditions. Do tail events in the home country trigger extreme responses by foreign investors – are foreign investors ‘fair weather friends’? In this, is there asymmetry between the response of foreign investors to very good versus very bad days? Do foreign investors have a major impact on domestic markets through large inflows or outflows – are they ‘big fish in a small pond’? Do extreme events in world markets induce extreme behaviour by foreign investors, thus making them vectors of crisis transmission? We propose a modified event study methodology focused on tail events, which yields evidence on these questions. The results, for India, do not suggest that financial globalization has induced instability on the equity market.