Policy information uncertainty and trading behavior of foreign institutional investors

Biwesh Neupane, Chaman Shrestha, Chandra Thapa*

*Corresponding author for this work

    Research output: Chapter in Book/Report/Conference proceedingConference contributionpeer-review

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    Abstract

    This paper examines the impact of policy–related information uncertainty (PIU) on the trading behaviour of foreign institutional investors (FII) in emerging equity markets. We undertake an empirical analysis using transaction–level data and exploiting a quasi–natural experiment set–up provided by an unexpected tax–related policy announcement in the Indian equity market that generated a period of policy uncertainty. Our results show that FII reacts quickly and withdraws, on average, investments worth at least 0.713 basis points of the market capitalization (USD 0.17 million) per day for average equity during the PIU period. However, the sentiments of the FII turn significantly positive when the concerned PIU is eradicated. The results suggest that policymakers, particularly in capital constraint emerging markets, should be highly conscious of generating PIU if they wish to attract and retain overseas investors.
    Original languageEnglish
    Title of host publication12th International Conference of the Financial Engineering and Banking Society
    PublisherFinancial Engineering and Banking Society (FEBS)
    Publication statusPublished - 1 Jun 2023
    Event12th International Conference of the Financial Engineering and Banking Society: Stability and Risk in Banking and Financial Markets - Mediterranean Agronomic Institute of Chania, Chania, Greece
    Duration: 1 Jun 20234 Jun 2023
    https://www.febsociety.org/conferences/international-conferences/12th-international-conference/overview/

    Conference

    Conference12th International Conference of the Financial Engineering and Banking Society
    Abbreviated titleFEBS 2023
    Country/TerritoryGreece
    CityChania
    Period1/06/234/06/23
    Internet address

    Keywords

    • policy–related information uncertainty
    • foreign institutional investors
    • emerging markets
    • transaction level data
    • quasi–natural experiment

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