EMPIRIAL EVIDENCE OF VOLATILITY SPILLOVER OF NET FII INFLOWS ON INDIAN STOCK MARKET

Abstract

Foreign institutional investors have become increasingly important and contribute significantly to emerging stock markets. The present study attempts to analyze the causal relationship between the investments by FII’s & returns of Stock Market in the Indian stock market and also to analyze incidences of volatility spillover from one variable to another, also to check for bi-directional relation. For this purpose, thirteen years of daily data ranging from 2009 to 2022 which will include the Stock market data along with Indian Net FII flows. In order to assess volatility, GARCH (1,1) model has been used and the results states that GARCH (1,1) model is significant enough to explain volatility spillover effect of FIIs on SENSEX. Granger Casualty test has been used to measure causal relationship between Indian FII data and SENSEX data. The results states unidirectional casualty between Indian SENSEX data and Indian FII data.

Keywords: Stock market, Volatility spillovers, FIIs Capital Flows, Stock markets, SENSEX, GARCH Model, Finance.