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Trading Behaviour of Investor Categories and Its Impact on Indian Equity Market

  • Saji GeorgeEmail author
  • P. Srinivasa Suresh
Chapter

Abstract

The study is carried out in the Indian equity market based on the data drawn from both BSE and NSE for a period spanning from 2004–2016 to examine the trading behaviour of investor categories and its association with major indices in Indian equity market. Three common characteristics in the trading behaviour of FIIs, banks, NRIs, proprietary traders, insurance companies, and DIIs (including bank and insurance) were analysed based on principal component analysis. The study observed disconnection of trading activity by investor categories with the performance of the economy. Further, it is also observed that the characteristic that is heavily influenced positively by the commonality in client trading, FIIs, banks, insurance and DIIs and negatively influenced by proprietary trading was found to be significantly associated with irrational sentiment in the market. The component which is significantly positively related to the irrational sentiment in the market and negatively associated with economic indicators though not significant showed a negative association with all the major indices in the market. It is concluded from the analysis that FIIs, DIIs and client trading activities are much similar to those of noise traders in the market, but following contrarian trading strategies while proprietary trading taking opposite position in the market by trading against these groups indirectly increase the errors in the market in the guise of market making. Insurance companies are the group which trade in line with economic fundamentals and positively influence the movements in Indian equity market.

Keywords

Trading behaviour Investor categories Irrational sentiment Economic fundamentals Principal component analysis 

JEL Classification

G1 G12 G14 G40 

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Copyright information

© Springer Nature Singapore Pte Ltd. 2018

Authors and Affiliations

  1. 1.Department of EconomicsNorth Eastern Hill UniversityShillongIndia

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