Trade informativeness of foreign investors in India

This study examines the performance of foreign investors’ (FI) portfolio alphas in the Indian stock market. We adopt calendar-time portfolio approaches on a dataset spanning the period 2003-2019. Holdings-based portfolios do not generate abnormal performance, while transactions-based portfolios show buys of foreign investors underperform sells. We investigate whether Direct Market Access (DMA) can help decrease the underperformance of FI. Though DMA reduces the underperformance of FI portfolios on shorter holding periods, trade informativeness remains negative across all trading holding periods, from one day to one year. The trading behavior continues to be positive feedback, indicating informational disadvantage to FI.