Foreign Fund Flows and Equity Prices during the COVID-19 Pandemic: Evidence from India

32 Pages Posted: 7 Sep 2022

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ADBI Submitter

Asian Development Bank Institute

Viral V. Acharya

Professor; New York University - Leonard N. Stern School of Business; New York University (NYU) - Department of Finance; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); National Bureau of Economic Research (NBER)

V. Ravi Anshuman

Indian Institute of Management Bangalore

K. Kiran Kumar

affiliation not provided to SSRN

Date Written: July 2022

Abstract

We study the period of the COVID-19 pandemic to assess the impact of foreign institutional investor (FII) flows on asset prices in an emerging market. Using a dataset of stock-level foreign fund flows of Indian equities, we show that stocks experiencing abnormally high innovations in foreign fund flows face a permanent price increase (an “information” effect), whereas stocks experiencing abnormally low (negative) innovations in foreign fund flows suffer a partly transient price decline. During the COVID-19 pandemic, immediate price effects were exaggerated and followed by higher transient volatility. Our methodology shows the efficacy of stabilization policies, initiated notably by the Federal Reserve, in dampening this relationship of foreign fund flows and equity prices in the immediate aftermath of the COVID-19 pandemic. We find the price effects of the FII flows in the pre-stabilization phase to be similar to those during the earlier crisis periods of the taper tantrum and the global financial crisis.

Keywords: foreign institutional investors (FIIs), foreign ownership, portfolio flows, price impact, taper tantrum, VIX, volatility

JEL Classification: F21, G11, G14, G15

Suggested Citation

Submitter, ADBI and Acharya, Viral V. and Acharya, Viral V. and Anshuman, V. Ravi and Kumar, K. Kiran, Foreign Fund Flows and Equity Prices during the COVID-19 Pandemic: Evidence from India (July 2022). ADBI Working Paper 1333, Available at SSRN: https://ssrn.com/abstract=4204217 or http://dx.doi.org/10.2139/ssrn.4204217

ADBI Submitter (Contact Author)

Asian Development Bank Institute ( email )

Kasumigaseki Building 8F 3-2-5
Kasumigaseki, Chiyoda-ku
Tokyo, 100-6008
Japan

Viral V. Acharya

Professor ( email )

44 West 4th Street
Suite 9-160
New York, NY NY 10012
United States
2129980354 (Phone)
2129954256 (Fax)

HOME PAGE: http://www.stern.nyu.edu/~vacharya

New York University - Leonard N. Stern School of Business ( email )

44 West 4th Street
Suite 9-160
New York, NY NY 10012
United States
2129980354 (Phone)
2129954256 (Fax)

HOME PAGE: http://www.stern.nyu.edu/~vacharya

New York University (NYU) - Department of Finance

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

V. Ravi Anshuman

Indian Institute of Management Bangalore ( email )

Bannerghatta Rd.
Department of Finance
Bangalore, Karnataka

K. Kiran Kumar

affiliation not provided to SSRN

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