Review of Professional Management- A Journal of New Delhi Institute of Management

Tom Jacob ¹, Rincy Raphael ²

Affiliations
1 Assistant Professor, Dept. of Commerce, Christ College, Irinjalakuda, Kerala, IN
2 Research Scholar, Anna University, Chennai, IN

Abstract

Developing nations like India have been growing with adequate flows of foreign capital in their respective countries. Foreign Portfolio Investment helps to supplement domestic savings and meet the capital requirements. While India is one of the attractive destinations of foreign capital, these capital flows are volatile in nature. The present work aims at exploring the various macro-economic variables affecting the flow of Foreign Portfolio Investment (FPI) in India, by taking monthly data for a period of twenty two years. The causal factors of Foreign Portfolio Investors in India can be dissected with the assistance of Auto Regressive Distributed Lag model (ARDL). Indian stock market (BSE Sensex return) has positive Impact and macroeconomic determinant like Economic Growth (IIP) has substantial positive impact on FPI in India. But all other macroeconomic variables like Wholesale Price Index, Exchange Rate and dummy variable like financial crisis are insignificant with respect to the flows of FPI in India. In short, this study concludes that FPI inflows in India are determined by both stock market characteristics and dynamics of macroeconomic variables of Indian economy.

Keywords

Sensex, ARDL, ADF, AIC, Short-Run Dynamics, Long-Run Equilibrium.

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Tom Jacob ¹, Rincy Raphael ², Stebiya M. V. ³

Affiliations
1 Assistant Professor, Dept. of Commerce, Christ College, Irinjalakuda, Kerala, IN
2 Research Scholar, Sri Ramakrishna Engineering College, Coimbatore, Tamilnadu, IN
3 Research Scholar, Christ College, Irinjalakuda, Kerala, IN

Abstract

The financial integration of Southeast Asian markets has been an important research topic. Due to recent global developments in financial markets, the behaviours of these emerging markets are gaining much interest. This research paper empirically analyses stock market integration of international portfolio diversification across some Southeast Asian countries, namely, Indonesia, Malaysia, the Philippines, Singapore and Thailand (ASEAN-5). The augmented Dickey-Fuller unit ischolar_main test has been used to verify the static properties of market return of ASEAN-5 countries. An analysis of cointegration among these countries' market returns has been done using the Johansen Cointegration Approach. The co-movements among ASEAN-5 economies were analyzed through the Granger Causality test. Results of the Granger causality tests indicate interdependence among ASEAN-5 market returns. This suggests a co-movement among ASEAN-5 capital markets, but not all of these ASEAN-5 capital markets were fully integrated. This study also found that the Malaysia Stock Exchange, the Stock Exchange of Thailand, the Singapore Stock Exchange and the Philippines Stock Exchange were fully integrated, but Indonesia Stock Exchange was not. Essentially, this study provides insight for policymakers, portfolio managers, domestic and international investors, risk analysts and financial researchers to diversify their investment portfolios by combining assets from each ASEAN-5 country.

Keywords

Capital Market Integration, ASEAN-5, Emerging Market, Market Risk.

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