Impairment Of Stock Markets By Participatory Notes And Foreign Institutional Investors – A Study Using Vector Error Correction Model

Abstract

The study employs Johansson’s Vector Error Correction Model to investigate the long term stability between Bombay stock exchange returns and Inflows from Participatory Notes, Foreign Institutional Investors excluding Participatory Note investor’s and Gross Domestic Product in India from June 2007 to January 2021. On testing the Vector Error Correction Models, it was found that long term equilibrium was absent. However, by applying Impulse Response Function it was found that change in the level of Participatory Notes and Foreign Institutional Investors does impact the returns in the short term. The outcome to innovation shocks in Participatory Notes, Foreign Institutional Investors and Gross Domestic Product had significant impact upon the system only in the short run.