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The present study examines the determinants of foreign institutional investments (FII) in India, which by January 2003 almost exceeded U.S. $12 billion. Given the huge volume of these flows and their impact on the other domestic financial markets, understanding the behavior of the flows becomes very important, especially at a time of liberalizing the capital account. By using monthly data, we found that FII inflow depends on stock market returns, inflation rates (both domestic and foreign), and ex‐ante risk. In terms of magnitude, the impact of stock market returns and the ex‐ante risk turned out to be the major determinants of FII inflow. Unlike some of the other investigations of this topic, our study has not found any causative link running from FII inflow to stock returns. Stabilizing stock market volatility and minimizing the ex‐ante risk would help to attract more FII, an inflow of which has a positive impact on the real economy.

This article attempts to present a framework for the estimation of fiscal multipliers for the Indian economy in the structural macroeconomic modelling tradition. Empirical estimates of short-run multipliers are obtained by giving shocks to a range of fiscal instruments-expenditures and taxes. As per our estimates, the values of the capital expenditure multiplier, transfer payments multiplier and other revenue expenditure multiplier are 2.45, 0.98 and 0.99, respectively, while the tax multipliers are around −1. Expenditure multipliers were also obtained in the presence of fiscal consolidation targets. These estimates again point to the strong multiplier effect of capital expenditure on output, and underscore the need to prioritise capital expenditure.

Purpose – This paper aims to examine the contagion effects of Greece, Ireland, Portugal, Spain and Italy (GIPSI) and US stock markets on seven Eurozone and six non-Eurozone stock markets. Design/methodology/approach – In this paper, a dynamic conditional correlation (DCC) model popularly known as DCC-GARCH (Generalized Autoregressive Conditional Heteroscedasticity) model given by Engle (2002) is applied to estimate the DCCs across sample markets. Findings – Analyzing the Eurozone crisis period, the empirical results suggest that among GIPSI stock markets, Spain, Italy, Portugal and Ireland appear to be most contagious for Eurozone and non-Eurozone markets. The study finds that France, Belgium, Austria and Germany in Eurozone and UK, Sweden and Denmark in non-Eurozone are strongly hit by the contagion shock. Practical implications – The findings of the study have significant implications for the concerned regulatory authorities, as it may provide an important direction for further policy research with regard to financial integration in the European Union (EU). From global investors’ perspective, the EU-based diversification strategies seem to be inefficient especially during Eurozone crisis. Originality/value – To the best of the authors’ knowledge, this is the first study that examines the issue of financial contagion of Eurozone crisis for a large basket of stock markets of European countries comprising seven Eurozone and six non-Eurozone markets for the period 2009-2012. The study uses the Markov regime switching model to identify crisis period and utilizes the DCC estimates of DCC-GARCH to examine the patterns of financial contagion. The finding of this study is quite interesting and is different in several ways than existing studies in the literature.

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