Trading Behaviour Exhibited by Institutional Investors During Calm and Volatile Periods in the Indian Scenario

Abstract

The stock market is the reflection of the trading pattern of various investors. The present study attempts to examine the trading behaviour followed by foreign institutional investors, domestic institutional investors and mutual funds during 2010–2020 in the Indian stock market. The whole time period is divided into two subperiods using the chow breakpoint test. Two vector autoregression framework models accompanied with impulse response function and variance decomposition analysis are employed in both the subperiods, namely calm period and volatile period. It is found that the institutional investors do not pay heed to the market returns in the calm period, while the interdependency among the institutional investors increases in the volatile period. The structural break enhances the forecasting accuracy of the model significantly. This study will help the government to understand the impact of calm period and volatile period on the trading behaviours of the institutional investors and thereby their sentiments in the Indian stock market. JEL Codes: G1, G23