Market timing skill of foreign portfolio investors in India

摘要

This study examines the market timing skill of foreign portfolio investors (foreign institutional investors or FIIs) in India as a group. A simulated portfolio is constructed that invests in the 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. The results based on bootstrapped modified internal rate of return of investment portfolios suggest that the FII portfolio does not outperform the benchmark portfolios, nor the portfolios representing investment strategies of DIIs and other investors. Our results suggest that the FIIs do not have superior market timing skills.