FEED-BACK TRADING BEHAVIOR OF FOREIGN INSTITUTIONAL INVESTORS AND LOCAL MUTUAL FUNDS IN INDIAN STOCK MARKET: AN EMPIRICAL EVIDENCE

This paper makes an effort to investigate the presence of feedback trading behavior, if any with reference to foreign institutional investors (FIIs) and mutual fund investments in relation with the benchmark market index CNX SandP Nifty. The study used the daily data for the period started from April 1st, 2001 to December 31st, 2009 and applied various econometric models to identify the investment behavior of various institutional investors. The study concluded that the FII's are engaged in the positive feedback trading activities and inducing volatility in Indian stock market, whereas the local mutual funds are found to be involved in negative feedback trading in Indian stock market, which provide support to the market when it becomes volatile.