GLOBAL FINANCIAL CRISIS, FOREIGN INSTITUTIONAL INVESTMENT AND MACROECONOMY IN INDIA

The paper makes an attempt to examine the nexus between flow of foreign institutional investment and other macro economic variables namely the return on domestic and international stock market, exchange rate and call rate, with focus on the issue of causality. The paper addresses this issue in the Indian context, after the eruption of global financial crisis. Analyzing the daily data from Jan2008-Feb2012 the paper finds that FII flow in India is more a consequence than a cause of stock market return in India and abroad. The study also shows that there exists strong bidirectional causality between exchange rate and FII flow, at least for shorter time lag. Moreover there exists a very weak contemporaneous correlation between FII and other economic variables considered in the paper.