Badhani, K. N., & Kumar, A. (2020). Market timing skill of foreign portfolio investors in India. IIMB Management Review32(1), 24-38.

Abstract:

This study examines the market timing skill of foreign portfolio investors (popularly called foreign institutional investors or FIIs) in India as a group. A simulated portfolio is constructed that invests in market index replicating the patterns of aggregate net FII flow. Similar portfolios are constructed replicating the trading behaviour of domestic institutional investors (DIIs) and investors of other categories. The performance of these portfolios is compared with the performance of two benchmark portfolios constructed based on buy-and-hold strategy and systematic investment strategy, respectively. The results based on bootstrapped modified internal rate of return (MIRR) of investment portfolios suggest that the FII portfolio does not outperform the benchmark portfolios. On the contrary, the average returns of benchmark portfolios are significantly higher than the average return of FII portfolio. FII portfolio does not outperform the portfolios representing investment strategies of DIIs and other investors also. Similarly, FII strategy does not outperform two benchmarks for forty-two selected securities at individual level. Therefore, our results suggest that the FIIs do not have a superior market timing skill.


URL: https://doi.org/10.1016/j.iimb.2019.07.012