Domestic Institutional Investors and Sectoral Indices of India: A Toda Yamamoto Approach

Abstract

The study investigates the behavioural dependence of domestic institutional investors (DIIs) with the sectoral indices of the national stock exchange of India. For the first time in the Indian context, the domestic institutional investors are studied in a broad sense, i.e. the study not includes merely mutual funds, but financial institutions, insurance companies and venture capital funds also. The results reveal positive and strong behavioural dependence of many sectoral indices in the national stock exchange on financial institutions, insurance companies and mutual funds. The Correlation results support the results of Toda Yamamoto model by showing strong and positive correlations of sectoral indices vis a vis financial institutions, insurance companies and mutual funds. The results of the Toda Yamamoto model for venture capital fund, on the other hand, are insignificant with weak correlation. In contrast to the findings of many previous studies that mutual funds do not affect future stock returns the current study reports that causality runs from financial institution, insurance companies and mutual fund investments to sectoral indices of national stock exchange of India. These results illuminate the important role played by domestic institutional investors in Indian stock markets.