1221641Chapter: 5 Analysis and interpretation of dataGraph 1: Trend in stock market returns and FII investments Figure 1 illustrates the trend in stock market returns and of investments in FIIs during the period 2008-09 to 2012-13. First of all, regarding the stock market performance, the trend seems to be on a linear path but almost referring to stationary data. On the other hand, investment in FIIs in the same period indicates volatility in nature by showing periodic fluctuations over the years.5.3 Causality Relationship between Investment in FIIs and Stock Market Return: The relationship between the stock market return and the its impact on the FII is directly studied. Therefore, the testable hypothesis focuses on these two economic series. The long-term relationship between stock market return and FII is explored using the concept of cointegration. The concept of cointegration is fundamental to understanding long-run relationships between economic time series [Granger 1988]. If the two variables are cointegrated, in the long run they must obey an equilibrium relationship, even if in the short run they may move away. There is therefore a steady state relationship between the variables. To achieve the objective, first the data was subjected to a test to know whether the raw data is stationary or not before deciding on the cointegration and causality test. The Dicky-Fuller augmented unit root test is applied to test the stationarity of FII and USD/rupee exchange rate and the result (from E-views statistical software) is shown in Table 1 and Table 2 respectively. Unit root is applied for logarithmic transformation of FII and stock market return. Table -1 illustrates the ADF test result for the FII without any difference i.e. D(0). This is also referred to as level...... middle of paper......9(-0.378) -0.900(-1.858)R2 0.0195 0.054 0.0070 0.0049 0.0089 0.1688 Statistic F* Significant at 5% level, * * Significance at 10% level,5.12 Estimate Interpretation of OLS Regression Results The OLS regression result of stock returns for selected pharmaceutical industries is presented in Table-4. In light of these findings, there is a non-significant relationship (statistically) between FII investments and stock market returns for all six selected pharmaceutical industries. In essence, there is statistical evidence to conclude that stock returns influence FII investments in pharmaceutical sectors. However, this deduction is based on only a very few select companies. This is the limitation of the present study.Reference: Suchismita Bose, “Mutual Fund Investments, FII Investments and Stock Market Returns in India”, ICRA Bulletin, Money and Finance, September 2012.