Journal of Business & Economic Policy

Impact of FIIs Investment on Volatility of Indian Stock Market: An Empirical Investigation
Bashir Ahmad Joo, Zahoor Ahmad Mir

Abstract
The investment by Foreign Institutional Investors (FIIs) has become a dynamic force in the development of Indian stock market and is increasingly seen as an important cause of stock market volatility. This state of affairs has propelled researchers to study the nexus between FIIs capital flows and stock market volatility. In order to ascertain the link between the two, present study makes a modest attempt to develop an understanding of the FIIs investment and its impact on stock market volatility. The study is conducted using monthly time series on NIFTY, SENSEX and FIIs activity for a period of fifteen years spanning from January, 1999 to December, 2013. To check the non-stationarity of the time series the Augmented Dickey-Fuller (ADF) unit root test is applied. In present study, statistical tools like mean, variance, standard deviation, skewness and correlation analysis are used to examine the impact of FIIs impact on Indian stock market volatility. In addition to these tools, GARCH model is also used to study the impact of FIIs capital flows on stock market volatility. The study reveals that there is significant relationship between FIIs capital flows and stock market volatility. Moreover, FIIs investment has statistically significant influence on volatility of NIFTY and SENSEX, used as proxy to Indian stock market.

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