Foreign Investors Under Stress : Evidence from India

Author/Editor: Ila Patnaik ; Ajay Shah ; Nirvikar Singh
Publication Date: May 22, 2013
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate
Summary: Emerging market policy makers have been concerned about the financial stability implications of financial globalization. These concerns are focused on behavior under stressed conditions. Do tail events in the home country trigger off 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 behavior 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.
Series: Working Paper No. 13/122
Subject(s): Foreign investment | India | Stock markets | Emerging markets | Economic models

Publication Date: May 22, 2013
ISBN/ISSN: 9781484364529/1018-5941 Format: Paper
Stock No: WPIEA2013122 Pages: 31
US$18.00 (Academic Rate:
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