BEHAVIOUR OF STOCK PRICES SINCE LIBERALIZATION: THE CASE OF FII IN INDIA

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Mehta, Sonal (2008) BEHAVIOUR OF STOCK PRICES SINCE LIBERALIZATION: THE CASE OF FII IN INDIA. [Dissertation (University of Nottingham only)] (Unpublished)

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Abstract

Stock market liberalization is a decision made by the Government of India to allow foreigners to purchase shares in the stock market of India. India is one of the biggest and fastest growing economies and has attracted more attention of the investors in the recent years. After liberalization in 1991, India has become one of the hotspots for global investment. Foreign Institutional Investors have given a boost to the economic growth of India and helped in financing it. The stock markets have grown in the past twenty years and the financial sector has become modern and well-disciplined.

The present study examines the effect of liberalization on the stock indices of Bombay Stock Exchange. The interest of the research is to observe the volatility of the stock market with the introduction of FIIs, the impact of the first and subsequent liberalizations on the stock returns, the effect of the exchange rate on the flow of capital by the FIIs and the changes in GDP of India by the changes in the market capitalization. For this purpose the International Asset Pricing Model (IAPM) and ARCH/ GARCH model are applied to the data.

It has been found that volatility is a part and parcel of liberalization and does not have a major effect of the fluctuations of stock return. There are many factors that affect the inflow of foreign capital into the country like exchange rate, balance of payment, interest rate etc. Rise in market capitalization leads to rise in GDP. Liberalization leads to fall in cost of capital and rise in the market efficiency. Overall, liberalization has proved to be beneficial for the Indian economy.

Item Type: Dissertation (University of Nottingham only)
Depositing User: EP, Services
Date Deposited: 02 Feb 2009
Last Modified: 16 Feb 2018 18:18
URI: https://eprints.nottingham.ac.uk/id/eprint/22424

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