Policy information uncertainty and foreign institutional investors trading behavior: evidence from India
利用印度意外税收政策公告提供的准自然实验，研究发现政策信息不确定性导致外国机构投资者迅速撤资，且不确定性消除后投资不会立即恢复，但长期会回归正常水平。
Abstract Using transaction–level data and exploiting a credible quasi–natural experiment set provided by India’s unexpected tax–related policy announcement, we examine the impact of policy–related information uncertainty (PIU) on the trading behavior of foreign institutional investors (FII). Based on transaction–level data, we compute the daily net equity trading by all FII of each listed Indian firm. We find that FII reacts quickly and withdraws significant investments during the PIU period. However, the investments of the FII do not become positive immediately when policymakers eliminate the relevant PIU. Further analysis reveals that the impact of PIU subdues and FII equity flow returns to the pre–PIU level in the long term. The results suggest that policymakers, particularly in capital–constrained emerging markets, should be highly conscious of generating PIU if they wish to attract and retain overseas investors.